Asset Based Lending: What Are the Advantages?

CSB Capital Funding - Asset Based Lending

Understanding when to use different forms of short-term financing can be the key to breaking out and expanding when you run a small business. Not only does financing give you access to working capital so you can take advantage of opportunities and keep business flowing when cash flow is tight, using the most efficient forms of it in a given situation can help you control expenses so you get the best return possible on the cost of accessing that capital. What you might not realize is that asset based lending can take a lot of the guesswork out of choosing the right financing.

What Happens When You Finance Your Assets

As an umbrella term, this form of lending refers to any short-term financing that uses your business assets. That includes equity in equipment you own, inventory, invoice value, your merchant account, or even purchase orders under the right circumstances. Using individual forms of asset financing according to what assets currently contain the most value can be a great way to avoid the high interest rates associated with unsecured credit. Another form of financing with your assets assesses them as a collective, on an ongoing basis, and allows you to draw credit as needed according to their total current value. This form of asset based financing is a little more work administratively, but it can provide you with the advantage of having approved access to funds whenever you need them. Either way, financing assets means taking an advance against their value, and the more assets you have the more working capital you can access.

Advantages To Using Asset Financing

Whether you’re looking for a single form of asset financing or an ongoing financing arrangement that uses all your assets, there are a few clear advantages beyond the savings you usually see over unsecured credit:

  • Fast approval times
  • Easy to reuse as needed when you have assets available
  • Rotate financed assets to get the best financing terms

In some cases, as with invoice factoring, it’s even possible to wind up with no recourse agreements that don’t rely on your business credit score. Not every form of asset based lending offers the same advantages, but they all share these big three. If you’re trying to decide between choices, it’s a good idea to look at your business model, because that can help you see where the best value lies. There are options for practically every business model, too. Not using an invoice based model? Try financing your merchant account or your inventory. Looking for fast cash with no debt? Think about an equipment leaseback. There’s something for any business if you look hard enough.

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