If your rapidly expanding small business is burning through its cash flow faster than clients pay, then it might be time to look into asset-based lending. As our small business lending firm has explained in the past, asset-based loans from The Commercial Finance Group provide numerous advantages over traditional bank loans. Finding the right business loan solution depends on your situation, including credit history, the type and quantity of assets available for collateral, the volume of business, your industry, and so forth. Even if you’re able to determine that an asset-based loan is the most beneficial type of funding that your business can receive, it can be daunting choosing from the myriad of business loan providers out there on the market.
Due to the abundance of alternative financing and business funding companies on the market, The Commercial Finance Group is going to touch on how to select the best asset-based lending company that meets and exceeds your business needs. Why does this matter so much? Selecting the right asset-based financing company is one of the most important decisions that you can make for your business, realistically. Your evaluation process of each asset-based lending company should be designed to ensure that you’re choosing the best asset-based lender to fit your tactical and strategic financing needs.
Without further ado, let’s take a look at some selection criteria and other odds and ends to keep in mind when selecting your ideal asset-based lending company.
Make Sure You Understand What You’re Looking For
Before you begin searching for the right small business lending provider, consider what asset-based lending actually means. For readers who are unfamiliar, asset-based lending refers to a business loan that is secured by collateral, which in this case is in the form of assets. Do you have viable assets to provide in order to obtain additional business funding?
Your assets would include your inventory, accounts receivable and/or other balance sheet-based assets. Through providing these assets, you’ll be able to actually secure a loan or a line of credit. Once you make sure you know what you’re doing before you research and contact various asset-based lending companies, then you can move ahead and apply various criteria to each asset-based lending company in question.
Relevant Industry Experience
Does the asset-based lending company in question have a good amount of relevant experience in your industry? Finding a small business lending company that is familiar with the industry you’re involved in and the inherent risks associated with working in such an industry will generally get you the best terms with that company. Knowing how to properly value your collateral is also a very important responsibility of the asset-based lending company in question, and if they are familiar with your industry then they are more likely to accurately value your business’ collateral.
Financing Your Specific Asset Mix
As we mentioned before, the most common assets that lenders tend to finance include accounts receivable, inventory, equipment, and real estate. As is the case for most lenders on the small business financing market, they tend to develop a specific expertise for evaluating a certain type of asset and thus have a preference for those kinds of assets. Therefore, it is critical for your small business that you find a lender that is comfortable and familiar with your particular asset mix.
Getting the highest level of financing is a good thing to expand the working capacity of your rapidly-growing business. If your asset-based lending company has a good familiarity with your mix of assets, then that will increase your odds of getting the highest level of financing possible relative to your situation. Generally speaking, a lender with experience in your industry is the most comfortable with your asset mix and can offer you the best terms possible.
Actual Asset-Based Lending Experience
Experience is everything in the job and business markets – experience helps you get a job, start and successfully maintain a business, advance your education, and so forth. Naturally, you’ll get better results with a lending firm that has a bounty of relevant industry experience. Ideally, only consider companies with at least five years of experience. Fortunately, in our case, The Commercial Finance Group far exceeds the collective experience of many other asset-based lending companies.
The Cost
This area of asset-based lending criteria is pretty self-explanatory. Like relevant industry experience, the lender’s fee is also very important to consider. After all, you’re already short on capital which is why you’re looking into asset-based lending solutions, so you don’t want to spend too much of your business’ valuable capital on…well, additional capital. Examine the lender’s fee structure to make sure that it aligns with what you can afford for your business. Also, be sure to ask about any ancillary fees if applicable to your asset-based loan situation, because they can tend to be rather high.
How They’re Funded
No, we’re not talking about how your asset-based lender will be funding you. Rather, we want you to consider how they’re funded. Bank-based asset financing companies tend to be funded the same way that banks are funded – with deposits and by selling certificates of deposit to institutional investors.
Independent asset-based lenders, on the other hand, are financed from multiple monetary sources including lines of credit, private equity, and hedge funds. Keep in mind that the source of the asset-based lending company is not necessarily as important as the diversity and the stability of their financing lines. To determine what the diversity and stability of their financing lines is, that will require a degree of due diligence. Perform due diligence regarding this matter and determine if you are comfortable with their funding sources.
Customer Contact Procedures
In order to properly process client payments, lenders who finance accounts receivable functions will often work directly with you. This area of asset-based lending criteria lies in the trust and comfort level between you and the small business loan company in question. In working with you, this course of action often requires your clients to send payments to a special bank lockbox. Additionally, asset-based lenders will also contact clients from time to time to make sure that the invoices that they receive are accurate. Again, this an area of finding the right asset-based loan company that you’ll want to make sure that you’re comfortable with. To do so, inquire about these processes.
On-Site Audit
Though it depends on the nature of your business and the asset-based lending company in question, some asset-based financing companies may request an onsite audit, especially if the financing line is above a particular threshold. If the financing company requests an on-site audit, there’s not a whole lot that you can do about it, because it is a common industry practice.
That being said, there are a few things that you can do here to learn more about a potential on-site audit. First, make sure that you understand the cost of the audit itself and the corresponding impact on the underwriting process. As you might expect, the cost and the impact of the audit on the underwriting process depends on the size of the facility, the types of assets being financed, the actual location of the assets, and the relative quality of the financial records.
Consider The Commercial Finance Group Today
Though choosing the right commercial lending solution and asset-based lending provider is easier said than done, we encourage your small business operations to seek out our proven, effective and well-documented small business lending solutions. The Commercial Finance Group hosts a wealth of collective commercial lending experience that is sure to meet the needs and business goals of your company, regardless of which industry you’re involved in.
Tired of limiting the growth of your business simply because of limited cash flow capabilities or a lack of business capital? Make these issues a thing of the past with The Commercial Finance Group’s working capital solutions today. Why wait and continue inhibiting the natural growth of your company? Don’t spend another day wondering about how you can continue to expand your business operations. Contact us today for more information about how we can help you and your business.
