At The Commercial Finance Group, we think that it’s important to dispel myths about our small business lending services. Providing accurate, honest information is important to uphold the integrity of small businesses practices and the small business loans that we provide. That’s why clearing up any myths that our clients or potential clients have regarding the industry that we work in is a good idea, because we don’t want you to feel confused and reluctant about using asset-based lending as a source of financing to help advance and further your valuable business operations.
Remember, if your small business operation is in need of an asset-based loan or other cash flow management boost, then look no further than The Commercial Finance Group for all of your capital management needs. With branch locations in Atlanta, Burbank and Los Angeles, there’s a working capital solution for you. Let’s take a look at some of these myths about asset-based lending.
Myth: Asset-Based Loans Are Always Costlier Than Traditional Loans
While this is a fair myth to believe that makes sense, this is not always the case. As a matter of fact, many asset-based loans in the commercial lending industry are very competitively priced and offer a lot of flexibility and versatility. Of course, whether or not an asset-based loan is the right move or not for your business entirely depends on your situation.
We’ll also use this myth to say that asset-based lending is also usually not more expensive than traditional lending. This is because getting unsecured loans will actually cost you more.
Myth: Asset-Based Loans Are Only Concerned With Collateral Value
Collateral value is indeed very important and intrinsic to asset-based loans as the very foundation of the loan itself are the assets pledged as collateral. However, it’s not the only thing that matters when it comes to asset-based lending. Generally, the companies that work with The Commercial Finance Group and other capital lending solutions companies already have a solid base and simply wish to expand and maximize their operations. So, there are many asset-based lending solutions that also strongly rely on financial performance.
Myth: Asset-Based Loans Are Only For Borrowers With Bad Credit
Many people think that business owners who get asset-based loans are always desperate and struggling to hold onto good credit, and that’s just not true. Unsecured loans, unlike asset-based loans, are rather costly, which is exactly why wise borrowers don’t opt for unsecured loans that depend on their credit worth.
Fortunately, many borrowers already understand this. Even if they have good credit worth and they’re not beyond desperate, they choose asset-based loans simply because those are the best choice for their situation.
Myth: Asset-Based Loans Make The Required Reporting Difficult
Another myth about asset-based lending is that it is extremely demanding as far as reporting numbers and cash flow goes. It is true that you will regularly have to report changes on your accounts deliverable and inventories, as asset-based loans use these as your reporting bases. While this might seem overly demanding, it really isn’t. Modern software programs and other dedicated technology functions have made this aspect of accounts deliverable and inventory reporting much, much easier.
Myth: Asset-Based Lending ONLY Considers Collateral
It is untrue that asset-based lending companies will only consider the collateral set forth by your business and nothing else. Naturally, we’ve made it pretty clear that collateral value is an extremely important component in determining the value of a given loan, it is far from the only factor considered. Many lenders will focus on your company’s financial performance and cash flow records to help determine the best lending option for your situation.
Myth: If A Bank Loan Is Out Of The Question, So Is An Asset-Based Loan
It’s a logical train of thought: ‘If I can’t get a bank loan, then maybe I shouldn’t borrow any money.’ It’s understandable that business owners who are declined for traditional bank loans may think poorly on alternative credit sources because they usually come with high-interest rates and generally unfavorable terms. After all, no business owner wants to get saddled with a financial burden that they are unable to repay and thus further damage their credit rating and payment history.
Fortunately, with your business, you can actually get the capital that you need simply by using the assets that your business already owns to obtain an asset-based loan – hence the name ‘asset-based.’ Plus, you can reduce your overall risk and interest expense by only borrowing what you need. Just because the bank didn’t provide you with a loan doesn’t mean that an asset-based loan isn’t the right option for your business to free up some of its cash flow issues.
Myth: Asset-Based Loans Are Restrictive and Prevent Business Growth
This myth seems to counter the whole point of asset-based loans and small business lending. Asset-based loans are intended to help grow your business, expand your operational capacity and free up any cash flow issues that your small business is experiencing.
For one, asset-based loans are more flexible than traditional bank loans, because your credit availability adjusts with the value of the assets that are securing it. Additionally, the borrower can utilize the proceeds from the asset-based loan in the normal course of their company’s business. In other words, they’re not restricted to specifically using the funds for one sole purpose, which is especially important if an unforeseen financial crisis occurs. This takes us to our next myth.
Myth: You Can’t Do Multiple Things With An Asset-Based Loan
It’s hard for small business owners to grow their company by simply putting money in one area of their operations. In fact, asset-based loan borrowers can use the funds from an asset-based loan to do things like digital marketing and print media advertising, making payroll, hiring and training due to an expanded workforce, purchasing inventory and supplies, expanding one’s customer base, and taking advantage of purchase discounts.
Myth: You Can Do Many Things With A Traditional Bank Loan
Unlike an asset-based loan for businesses, you generally cannot use a business loan provided by a bank for multiple aspects and operations of your business. This means that a traditional business bank loan is actually extremely limiting as far as growing your business goes. Usually, with a traditional bank loan, the borrower has to indicate on the loan application how it intends to use the funds, which in turn restricts the borrower’s use of the funds.
In fact, the use of funds for your business from a traditional bank loan are so strictly enforced that the borrower may actually have to pay the money back or pay heavy penalty fines if it the borrower uses the loan proceeds for a purpose not specifically stated on the loan application.
Myth: Asset-Based Lending Is Solely For Companies With Low Cash Flow
While asset-based loans and other alternative forms of financing are largely intended for businesses struggling with cash flow issues, the reality is that companies of all sizes, stages and operational capacity readily chose asset-based lending over traditional bank lending.
What also makes asset-based loans attractive to business owners of various sizes is that asset-based loans are not unsecured loans, unlike unsecured bank loans. Since unsecured bank loans are not supported or held accountable via collateral, a given company will have to pay back the bank whether or not the company is actually succeeding as a result of the loan. Asset-based loans are a safer option because the funding from asset-based loans is secured through assets. Therefore, a business owner would not have to worry about ruining their credit score – a critical aspect of any company’s financial reputation.
Contact The Commercial Finance Group Today
Our small business loans and commercial loans company provides accurate, comprehensive and helpful asset based financing for countless businesses, and that is far from a myth. If you’re looking to take your business operations to the next level, work through your cash flow issues or simply expand your workforce, then look no further than The Commercial Finance Group to provide you with financial assistance. Questions? Contact us today about working capital solutions, small business lending, and more!
