Asset based lending works like most other business financing options — you get cash to drive your business growth and pay it back over time. Asset based lending, however, involves putting up an asset (which will be explained below) as collateral. You can choose to put up real estate, but there are many other options that may be simpler, easier, and less risky. It’s not uncommon for new and older businesses to experience cash flow issues due to rapid growth or slow-paying customers. In these situations, asset based lending helps you unlock instant cash to use immediately by leveraging assets like receivables, inventory, and more.

Many businesses utilize asset based lending for standard working capital needs or shortages, during seasonal slow periods, and to cover slow-paying receivables. When you put an asset up as collateral, you’re reducing the lender’s risk and giving them confidence because they’re given a security interest in the asset. As a result, this may reduce your interest rate. However, interest rates can vary based on a number of factors.

While there are a number of types of collateral, lenders tend to prefer highly liquid assets like receivables to illiquid options like equipment. Nonetheless, you can still find great options by putting up your equipment as collateral. Revolving asset based credit lines allow you to continuously draw additional capital as you need it.

Asset Based Lending for Small Business Owners
Asset Based Lending for Small Business Owners

What Is Asset Based Lending?

Asset based lending is a type of business financing in which the lender secures the agreement with an asset or collateral. Asset based lending can give the borrower either a loan or line of credit. Collateral for asset based lending doesn’t need to be real estate. Other more liquid assets, like receivables, inventory, purchase orders, and potentially equipment can also act as collateral.

You can leverage one or more of these assets to secure a loan or an ongoing credit facility/line of credit for your business. Unlike other financing options, your business can qualify for asset based financing with a low credit score or no history. Rather than meeting traditional requirements, you can qualify based on your receivables, inventory, or other assets. Asset based lines of credit and loans help you capitalize on the value of your liquid assets right away. Instead of waiting for payments, you can get working capital to cover expenses like growth, expansion, additional inventory purchases, and more.

How to Use Asset Based Loans

When it comes to fast cash for urgent working capital needs, asset based lending is a simple, fast and easy option. Generally, there are no restrictions on how you can spend these funds. 

  • Fuel Business Growth: Take the next steps in growing and expanding your business by opening a new location, expanding offerings, and more
  • Fund Inventory Purchases: Obtain inventory in bulk quantities to lower costs and drive profits, especially during peak periods
  • Fill New Orders: Invest in growth by purchasing the materials you need to fill incoming orders, despite high upfront costs
  • Cover Expenses: Stay on top of rising operating costs like rent, insurance and more with an asset based loan or credit line
  • Keep Extra Cash on Hand: Never miss a new, revenue-generating opportunity again with extra cash in your back pocket
  • Endure Slow Seasons: Cover expenses like payroll, operating costs, and marketing during slow seasons when revenue is down

You can put your additional working capital toward any expenses that will help your business grow!

Examples: How Industries Use Asset Based Lending as a Financing Tool

Asset based lending offers a viable way to grow your business fast, instead of waiting around for working capital to catch up with your needs. From a very early point, small, medium, and large businesses can all utilize asset based lending to grow. Here are a few examples of how companies in certain industries have already grown with ABL:

  • eCommerce: As demand increases, eCommerce companies can use asset based financing to buy more inventory, increase marketing, and land new customers.
  • Marketing & technology: With more clients on the books, marketing and technology companies can sell agreements to tap into additional cash and fuel growth.
  • Textile & shoe: Fast-growing textile and shoe companies frequently use ABL to purchase supplies and inventory ahead of bulk transactions.
  • Wholesale: ABL ensures wholesalers have the cash they need for high-ticket transactions that yield substantial returns, especially while getting things off the ground.
  • Gas & Oil: While gas and oil sales have sky-high profit margins on the distribution side, purchasing supply can be a cost challenge—which is where asset based loans often help.
  • Medical Supply: Distributors, especially those selling PPE, tend to utilize asset based lending in order to place bulk orders for inventory at the lowest, most cost-effective rate.

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