Unsecured business loans and business funding come in a variety if different types. Many people don’t consider some of the alternatives, such as asset-based loans. Just like a lot of other things, too much choice is not necessarily a good thing to have. Too many choices make it difficult to be decisive. When ends up happening is people tend to defer to what they are already familiar with. Merchant cash advances and traditional small business loans get a lot of love for this reason.
Unsecured small business loans and merchant cash advances both have their advantages for sure. When it comes to business funding, it is just one reason that people resort to these types first, which is because they are familiar. Merchant cash advances are very easy to get your hands on if you need fast business funding. Unsecured business loans can be very cost effective. Asset-based loans have their advantages, so what are some of them?
This is an advantage to some and a disadvantage to others, but these types of loans are short term. Whether or not you can pay back your business loan within a year or so depends on you and your situation. But many times, people just need a quick infusion of capital that they only need to use for a couple of months. As a result, the cost can be relatively low, since the risk to the lender is minimal.
Another thing about asset based loans it that the amount of money you can borrow is tied directly to the value of whatever asset you wish to pledge. The amount of your loan is usually some percentage of that value. You will not be approved to borrow the full value of the item. As a way of protecting their investment, they will liquidate or sell your collateral to repay themselves. Because they need to make it happen quickly, they will many times sell it below market value, and they don’t care as long as they get paid back.
An asset-based loan can be broadly defined as a loan taken by a business against the physical assets owned such as accounts receivable and inventory. Although accounts receivable are the most common collateral, inventory of the business or any other asset can be used to secure an asset based loan. Tangible assets of the business are the deciding factor for the lender or ABL Credit Facility while issuing a loan and not the credit history of the business or its cash flow status or the economic condition of the borrower. Another huge advantage is that an asset-based loan can be availed of quickly, unlike some other borrowing options. An extremely flexible approach to borrowing, asset based lending provides a fast and reliable source of working capital for business.
This ensures availability of cash when required by the business and opportunities that otherwise may have been out of reach, are made possible for the business with such infusion of cash. The application process for asset-based loans is a simple one, with the prerequisite being that the borrower’s assets qualify to the lender’s requirements. Depending upon the requirement of a particular business, there are customized borrowing options offered by lenders with flexible repayment plans. This revolving line of credit based on a percentage of the value of the company’s balance sheet assets requires businesses to pay interest only for the funds drawn and these interest rates are competitive in comparison with the other forms of borrowing.
There are people who’ll lend money based on the strangest items, whether it’s for business or a personal loan. There are companies who specialize in funding based on strange collateral. Whether it’s a collection of baseball cards, a boat, or your wine collection. As long as it has value, you can probably borrow against it.