Asset-Based Financing
Asset-based loans are a method of providing companies with working capital secured by its accounts receivables, inventory, property, plant, & equipment, and real estate. Basically, they are business loans secured by collateral. They are popular with start-up companies, established small businesses looking to fund growth, refinancing existing loans, mergers and acquisitions, and management buy-outs. Companies agree to sell future revenue in exchange for access to cash today. Interest rates are relatively low because they are secured by collateral. The maximum amount on a typical asset-based loan is 80% of accounts receivable and 50% of ending inventory.
Ideal candidates for an asset based loan meet one of the following:
Have a history of selling inventory and customers that have a track record of paying
Need cash flow to meet payroll or other working capital needs
Reached credit limits with lenders and need a new source of capital
Operate in an unpredictable business cycle with uneven cash flows
Undercapitalized companies that need cash to finance growth
Have a poor credit rating and cannot get a traditional loan