Understanding the Ins and Outs of Asset-Based Loans

Understanding the Ins and Outs of Asset-Based Loans

If you have thought about applying for an asset-based loan, it is essential that you first understand the ins and outs of how they work. In general terms, an asset-based loan is the process of securing financing with collateral or ‘assets’ of considerable value.

While most assets for this type of loan are in the form of either property or land, they can also be financed in other various forms such as equipment, inventory, stocks and bonds, or even a company’s accounts receivable.

However, the type of collateral may also influence whether or not the loan will even be approved. For example, liquid assets tend to be more accepted due to the ease of converting them into cash quickly, and easily. On the flip side, illiquid assets are generally much harder to sell, which may result in higher interest rates, or perhaps getting denied all together.

A major precaution suggests that all other capital raising options should be exhausted before considering this type of loan for the simple fact that if you are forced to default on an asset-based loan for any reason, the lender has the authority to seize and liquidate your assets. That is why you must be absolutely certain that you are capable of honoring and paying back on all the agreed upon terms.

Also in many cases, lenders do not conduct credit checks depending on the current value of your assets. This could be a nice perk if you have less than perfect credit. And if the need for financing is urgent, asset-based loans are typically disbursed within 1-3 business days.

If you would like more information about asset-based loans, contact your investment advisor today. At DrawBridge Capital, we can help you to find and customize the right financing plan to fit your business budget and needs.