Asset Based Loans
Asset Based Loans are a common type of financing tool that use a business’s assets as collateral to secure them funding. A business does not need a high credit score and stellar financials to qualify, they just need adequate assets that can be used as collateral.
Leveraging a business’s assets allows them to maintain the liquidity that is required for growth. For struggling businesses, an Asset Based Loan can facilitate a much needed cash infusion.
What Are Asset Based Loans?
An Asset Based Loan, as it sounds, is a loan that is backed by a borrower’s assets. Many kinds of collateral can be used, and certain asset classes will hold more value than others:
- Real estate
- Accounts Receivable
- IP (Intellectual Property)
- Marketable Securities
Use of collateral makes Asset Based Loans less risky for lenders than unsecured loans, and therefore lower interest rates are offered. Assets that are more liquid, like accounts receivable, will afford better terms than non-liquid assets like industrial equipment.
- Rates: Starting at 7%
- Funding Amount: $10K - $5M
- Funding Term: 3 Months - 3 Years
- Speed: 1 - 3 Business Days
How Do Asset Based Loans Work?
The funding amount of your Asset Based Loan depends on the value of your business’s collateral, this is called the ‘loan-to-value-ratio.' For assets that are illiquid, like inventory and equipment, the loan to value ratio can be as low as 50%. Assets that are more readily liquidated, like accounts receivables, will command a higher loan to value ratio of between 70% - 90%. This is how the loan to value ratio is calculated:
- Loan Amount = The maximum amount we are willing to loan your business.
- Asset Value = The market value of the assets designated as collateral for this loan.
What Are The Benefits Of Asset Based Loans?
If your business is asset-rich, you can access larger borrowing amounts with an asset based loan than you could with other types of unsecured loans like Business Term Loans or Business Lines Of Credit.
Asset Based Loans have lower requirements for a business’s credit score and past financials than many other options have. Receiving approval for an Asset Based Loan is also fast, taking just 1 – 3 business days.
What Are The Downsides To Asset Based Loans?
Favorable terms for Asset Based Loans are contingent on your business’s assets being of high enough quality for use as collateral. Some assets will not qualify if we are not confident in their current or future value.
The main downside to Asset Based Loans is that your assets may be liquidated in the event you are unable to make a payment.
Who Qualifies for Asset Based Loans?
Approved businesses generally met the following criteria:
- Annual Revenue: $120+
- Credit Score: 525+
- Time In business: 1 Year+