Is Asset-Based Lending or Traditional Bank Lending the Answer for your Business
Both small businesses and larger companies can face financial challenges. Their ability to borrow money can differ greatly and depends on a number of factors.
• Length of time in business
• Overall credit rating
• Real versus potential income
• Other concrete evidence that displace the stability and profitability of a business
For smaller businesses and those that are growing at a faster pace, meeting these criteria can be extremely difficult. Most companies would rather go with an unsecured bank loan, which is the traditional form of lending that most of us are familiar with.
The Difference Between Traditional Bank Lending and Asset-based Lending
Traditional bank loans are based on a number of criteria set by the financial community and adhered to in order to minimize the lending risk. Many companies who haven’t been in business for more than two years will be automatically ineligible for a small business loan.
This has led many of them to seek out asset-based lending. These are secured loans, or loans that are guaranteed with property or some form of financial asset. If the borrower defaults on the loan, the lender will have these assets to make up for the loss of capital.
Asset-based lending is generally more relaxed and makes it possible for people at all levels of financial health to get the money that they need to ensure business growth.
How Lending Works
The lender will provide funds based on the value of the collateral. The more valuable the assets, the more likely a company is to get more money. An asset-based lender will also be concerned with how well a company has paid its debts back in the past. There are times when even companies with low credit ratings will have an excellent track record of paying back their debts.
This relaxed method of lending allows small businesses to grow without needing to jump through all of the hoops presented by a bank-controlled loan.
Is Asset-Based Lending Right for You?
Most businesses have ready access to assets that could guarantee them a loan, but not all of them will meet the criteria for traditional bank loan. Asset-based lending can provide many of the same advantages, but with more accessibility from businesses just starting out, or ones that have had a rough patch.
If you have more questions about your company’s financial health, call Ironhorse. They have experienced personnel who can help you make the best decisions for your business.