Answering Frequently Asked Questions About Asset-Based Lending

When it comes to finding a working capital solution for your business, you have a lot of options. One of the small business lending opportunities that The Commercial Finance Group provides is asset-based lending. While this is a common solution to cash flow problems, many business owners have questions about what exactly it is and how it works. To help you better understand this unique lending solution, we have compiled a list of frequently asked questions about asset-based lending below. Keep reading to learn more!

What is asset-based lending?

Asset-based lending is a type of commercial financing that occurs when a company pledges assets in exchange for a revolving line of credit based on a percentage of the value of those assets. Assets with a higher liquidity availability will typically have a higher loan-to-value ratio.

What can be used as collateral?

Any fixed assets can be used as collateral. This most often includes accounts receivables, but can also include inventory, equipment and machinery, real estate, and company vehicles.

What are fixed assets?

Fixed assets are assets that a company owns as opposed to the equipment they are leasing.

What companies are good candidates for ABL?

Companies that are asset-heavy are the best candidates for ABL. This typically includes manufacturers, distributors, and wholesalers, to name a few. It is also ideal for companies who experience seasonal lulls or cyclical fluctuations in their profits, have erratic earnings, or a marginal cash flow.

Specifically, The Commercial Finance Group works with businesses that are engaged in creating business-to-business accounts receivable and need cash flow financing ranging from $25,000 to $2 million.

How is ABL different than factoring?

Both asset-based lending and factoring provide working capital for companies to use at their discretion. While factoring acts as more of a sales transaction where a factor will purchase accounts receivable, asset-based lending functions as a revolving line of credit. While factoring is common among newer companies, asset-based lending is favored among better-established companies.

How is ABL different than a traditional bank loan?

Asset-based loans are usually a good option for companies who are on their way to being able to secure a traditional bank loan. Many small business loans require companies to have a stellar credit history while remaining profitable. However, as you know, it takes money to make money. So, where does this leave companies who are in need of small business financing but do not meet the strict requirements needed to take out a business loan?

Unlike qualifying for a bank loan, your asset-based lender doesn’t focus so much on your credit history and revenue as they do on the value of your assets, making it a great option for companies that are growing faster than the cash is coming in or who have less-than-perfect credit. This allows companies who would otherwise not be able to take out a bank loan to still secure working capital.

How can asset-based loans help my business?

Asset-based loans can provide a number of cash flow solutions for small- and medium-sized businesses. One of the main reasons firms choose asset-based lending is simply to provide more working capital during lulls in the cash flow cycle. This working capital can then be used for day-to-day operational costs.

ABL is also a great solution when you need relative fast business funding for a merger or period of growth, who are undertaking a buyout, or even for companies facing bankruptcy.

What are the benefits of asset-based lending?

ABL provides a company with the necessary operating capital needed to function and grow. Asset-based lending typically includes fewer covenant restrictions thanks to its transparent reporting and monitoring between the lender and the borrower. ABL can also provide a predictable cash flow because it can be customized to the individual business’s needs.

Is the financing available stagnant?

No. The business financing available through asset-based lending is always evolving. As your assets grow, so will the amount of money you can borrow. One thing to keep in mind, however, is that while some assets will appreciate in value over time, such as real estate, others may depreciate, such as a company vehicle. This is why frequent evaluations are important when using asset-based lending to ensure you are maximizing your potential.

Is asset-based lending right for my business?

To find the answer to this, it is best to get in touch with The Commercial Finance Group. Based out of Atlanta, we are happy to provide asset-based loans throughout the United States and Canada.

At The Commercial Finance Group, we never offer you a one-size-fits-all solution because when it comes to commercial financing, there’s no such thing! When you work with us, we’ll work to understand your company story and what you are trying to achieve. Then, we’ll decide how we can fit into the greater puzzle of your business’s success. Our ultimate goal is to help your company succeed while you’re on your way to bankability.

Get in touch today to discuss asset-based lending and other working capital solutions for your business.