Common Questions and Trustworthy Answers About Asset Based Lending

Common Questions and Trustworthy Answers About Asset Based Lending

If you’re a small business owner, you care deeply about your company and its financial health. This is a good thing. Being cautious is important when considering any loan or line of credit because it helps you maximize your benefits and minimize interest rates.

That said, you shouldn’t hesitate to take advantage of smart funding opportunities that present themselves, either. The key to going into financing with both eyes open is to find the answers you need. This guide explains everything you need to know about asset-based lending programs.

What Are Asset-Based Lending Options and How Do They Work?

Asset-based loans are also known as ABL financing. They rely on business assets, or collateral, for qualification. Collateral refers to assets used as security to guarantee repayment of the loan. Sometimes, the assets belong to the business already, such as old construction equipment. Other times, the assets are the items being purchased, such as real estate properties.

How Can You Get Started With Asset-Based Loans?

It’s essential to know two things about asset-based lending. First, ABL financing isn’t just a single type of loan. It’s a large category that involves many types of funding options. Second, because ABL financing is a form of alternative financing, each lender can set its qualification requirements, terms or conditions.

What Types of ABL Financing Are Available?

In broad terms, you can find ABL funding options structured as loans or lines of credit. Loans provide a lump sum for your business to use immediately, and you start making monthly payments with interest right away. Lines of credit simply approve you for a certain amount of funds, but you decide when to use the money and how. Interest is charged only on what you use.

There are also specialized asset-based loans for equipment and real estate. For example, equipment financing provides low-interest rates that help businesses purchase everything from heavy machinery to payment systems. Invoice factoring and merchant cash advances leverage credit card sales or invoices as collateral for loans.

Do research before deciding which type of ABL financing is right for your business. There’s nothing wrong with discussing your needs with lenders and seeing what terms they can offer you. This process is called pre-qualification. It’s a soft application process that doesn’t involve any credit checks. Once you see what the lender is offering, you have a better idea of which asset-based loan is the best fit for your needs.