If your business is facing a working-capital crunch, or needs money for merger, expansion, or acquisition, you should consider asset-based lending, or ABL, as an option. As the name suggests, asset-based lending is a form of secured loan, or line of credit, for which the assets of the company serve as the collateral. The assets that are typically considered include inventory, accounts receivables, machinery, and equipment. Financial services like Accord Financial have worked with small and growing businesses to offer such loans without complicated terms and conditions. This brings us to the main aspect – what are the pros and cons of asset-based lending? Here is an overview that may come in handy.
The obvious advantages
- The biggest advantage or benefit of asset-based lending is immediate funding. When you need money for improving cash flow or working capital needs, this kind of advance works just right. The whole process of applying for the loan and getting an approval doesn’t take much time, especially when compared to conventional business loan. For businesses that have seasonal production, demand and requirements, asset-based loans are an apt solution.
- Getting qualified and approved for asset-based lending is not hard either. As long as a company has assets that are worth the loan amount, approval is often assured. Some lenders may want to know about the performance of the company and overall credit rating, but these are hard factors.
- The amount obtained through asset-based loans can be used for any kind of requirement – from financing new purchases to expansions. The lenders are interested in the assets, which work as eventual security for them, and therefore, this is a more flexible kind of loan option, especially for small businesses.
On the flip side
With any form of secured loan, repaying the amount back in time and as per the terms & conditions of lending is important. Without that, you have the chance of losing your company’s pledged assets, which can have a further financial domino effect on your business. The interest rate on asset-based loans tends to be high, given the simple terms of lending, and therefore, it is best to use this form of financing responsibly and only when needed.
Make sure that your company has evaluated all the pros and cons before applying for asset-based loans. Don’t shy away from asking questions with regards to repayment, interest rates, and term of the loan.