A loan is a form of funding available to business owners to help them when business is slow or to seize new opportunities. There are a variety of different lending options, which can be broken down into two major categories: asset-based loans and credit-based loans.

What’s an Asset-Based Loan?

An asset-based loan is based on the worth of the assets of the business. This doesn’t fluctuate as much, regardless of the rising and falling of the economy. In some industries, asset-based loans are much more attractive than credit-based loans.

How Do They Work?

A lender will review the assets of the business and determine what size loan the business qualifies for. Then, the borrower will be advanced a percentage of the value of those assets.

This is not the same as factoring because the assets are not being sold but are the collateral that is used to secure the loan. If the business is unable to pay the loan, the agency can then take possession of the assets.

Who Gets Asset-Based Loans & Why?

A business that has lots of high-value assets is going to get the most benefit from asset-based loans. This can be accounts receivables, inventory, equipment, raw materials, and even real estate. Businesses that lack these things are much less likely to get approved on an asset-based loan.

Typically, mid- to large-size companies take out these loans, due to having the assets necessary to secure it. Additionally, there are some industries that are more likely to possess the assets necessary to secure this type of loan.

An asset-based loan offers small businesses a way to use their assets to create cash flow when business is slow, or they want to make some changes. This can be a great option for many, but you must be aware that the interest rate is much higher than traditional loans. If you want to learn more about asset-based loans for your business, contact Porter Capital Group.