Use Assets to Secure a Business Loan
WHAT IS ASSET-BASED LENDING?
Our lender/investor network offers deep and diverse resources for solutions even with the most seemingly complicated and hopeless of circumstances.
- our partners, GRA Capital Group
A specialized form of secured lending whereby a company uses its current assets (accounts receivable and inventory, intellectual property, trademarks, equipment, etc) as collateral for a loan.
Traditional business financing, in which lenders primarily assess a business’s cash flow, works well for many companies. But while cash-flow lending depends on the strength and stability of a company’s cash flow, some businesses may be eligible for additional borrowing based on the assets they own. For them, an alternative known as asset-based lending, or ABL, may be preferable.
With ABL, a broad range of your company’s assets— ranging from accounts receivable to real estate and even brand names and intellectual property—can serve as collateral, unlocking needed capital. If your business has substantial assets, ABL may provide access to significant financing with a covenant-light structure, while also offering a level of flexibility in making future decisions that may not be possible with other types of loans.
HOW ASSET BASED LENDING WORKS
A lender will focus primarily on the value of your business’s assets, which are used as collateral to secure a loan.
First on the list is accounts receivable; typically, only current receivables (those that are less than 90 days from invoice date or no more than 60 days past due) are considered.
Next come assets such as inventory, machinery and equipment, real estate and intellectual property.
WHO CAN BENEFIT FROM ASSET BASED LENDING
Examples
Manufacturers
Distributors
Wholesalers
Retailers
Commercial Truck Companies
Commercial Real Estate
Characteristics
Asset-rich balance sheet
Varying cash flow
Seeking capital
PROS OF ASSET BASED LENDING
Fast approval times:
Compared to traditional bank loans, you can get approved for an asset-based loan fairly quickly.
Flexibility for loan use:
If you take out an asset-based loan, you may use the fund for just about anything.
Improved cash flow:
You'll be able to improve your cash flow and smooth out seasonal peaks and valleys
AN EXAMPLE OF ASSET BASED LENDING
DISTRIBUTION COMPANY
Distribution businesses are another good candidate for ABL. For example, wine, liquor and CBD companies will likely experience seasonal fluctuations in sales. Yet you may need to stock up in advance of summer and winter holidays, and there could be a gap between when payments are due to your suppliers and when you turn the inventory and are able to collect from the bars, restaurants and liquor stores you supply. Having an ABL line of credit to draw upon could give you needed flexibility.
AN EXAMPLE OF ASSET BASED LENDING
RETAIL COMPANY
Retailers that have significant inventory but
fluctuations in earnings also benefit from
ABL. During the early months of the pandemic,
when a national shutdown suddenly
shuttered clothing chains and other retailers,
our clients were able to use ABL to fund
their operations and also to enhance their online
presence. Through our network, asset based lending
provided greater liquidity than their already
existing cash flow financing.
AN EXAMPLE OF ASSET BASED LENDING
RETAIL COMPANY
Let’s say you run a manufacturing business that
manufactures commercial truck trailers. You need a loan to cover payroll expenses, but you don’t have a lot of cash on hand and find it challenging to get approved for traditional business loans.
When the economy stalls, demand for many goods is likely to fall, bringing down freight hauling volume and reducing orders for new trailers. Moreover, truck tractors typically have to be replaced more often than trailers, and trucking firms may opt to use their capital expenditure budgets to purchase tractors before costly new fuel efficiency regulations go into effect, for example. Yet despite fluctuations in cash flow, you need capital to weather dips in volume and to be able to expand and modernize production—and you have sufficient assets to qualify for a sizeable ABL line of credit.
You decide to move forward with this option and borrow money against your manufacturing equipment.
DominoFX Group connects you with a lender that offers asset-backed lending to similar businesses in your situation.
By using your physical assets as collateral, you receive the funds you need!
Through our partnership with
GRA Capital Group
We have the resources available to solve a number of financial challenges for small businesses. From simple to complex economic circumstances, while crafting an appropriate financial solution that allows our client the time to correct the issues.
