Small business owners may find themselves in need of a loan during periods of growth or during unexpected situations. There are many types of loans available that are designed to help small businesses meet immediate and future needs. However, traditional bank loans may not always be the right choice for every company. In that case, asset-based lending may be the right option. It can be obtained using business assets for collateral and is usually processed quickly, giving companies the chance to pay off debts, invest in growth, or cover other expenses.
Types of Collateral
In a traditional loan, the business owner or owners are usually required to offer up personal collateral. This can put the business owner’s house, car or other property in jeopardy if the loan is not able to be repaid. While asset-based lending also requires collateral, it only involves business assets, such as equipment, vehicles, accounts receivables, inventory or electronics. This allows the business owner to keep personal and company finances completely separate. It also means that the company can continue to use the assets while they are serving as collateral, allowing operations to proceed as normal.
Traditional loans can take a long time to process depending on what the requirements are. However, asset-based loans are usually processed quickly, making the funds readily available to businesses that need to rapidly cover pressing expenses. Because companies put up collateral, the credit score is not as important. Companies that have bad or no credit can have the chance to raise capital when traditional loans cannot be gotten. That makes it easier for new or struggling businesses to get cash to cover expenses or invest in growth. This type of loan is usually best used to cover short-term needs, and, like other types of loans, should be paid off in a timely fashion. The interest rate and terms may vary based on the company’s credit score, how long the business has existed, and what is being offered as collateral.
Any company that has fallen onto hard times or needs to raise funds to cover the expenses associated with a large project should look into whether or not an asset-based loan would be the proper choice for the situation. Research the options available beforehand to ensure the decision made is correct and will benefit the business. If possible, get advice from other people in the industry or talk to a financial expert to get a professional opinion.