What is Asset-based Lending and How Does it Work?

Asset-based lending (ABL) is a form of lending best suited for companies that may be highly leveraged, don’t have a strong balance sheet, or are simply looking for additional cash. Companies can use their accounts receivable, inventory, or equipment as collateral.

Asset-based lending is not a traditional form of lending. At the same time, asset-based lending should not be looked at as a “last-chance option;” in fact, ABL is becoming an increasingly popular option for small and middle-size companies trying to secure additional working capital.

Who Can Use Asset-Based Lending?

Any company can use ABL as long as they are willing, and able, to use their assets as collateral. Doing so can lead to additional opportunities; including hiring more employees, securing a new contract, purchasing equipment, making payroll, seizing a unique opportunity, and much more. Whether you are a manufacturer, service provider, government contractor, distributor, or wholesaler, you can gain extra cash with asset-based lending.

How Can a Company Use Asset-Based Lending?

Asset-based lending offers cash flow solutions. One type of solution is a revolving line of credit, or simply, a revolver; this is the most common form of ABL. A revolver allows your company to request cash advances against accounts receivable and inventory, and repay the money borrowed over the term of the loan. If you can repay the full amount at the end of the loan, the revolver option will be a good fit for your company. The second form of ABL is the term loan. Instead of accumulating more cash to pay off at the end of the loan period, you can pay off your loan in set increments over the same period of the loan.

Besides obtaining a loan on your assets, there is the option of factoring, also known as A/R finance. With factoring, a company sells its accounts receivable or invoices to a factor at a discount in exchange for an advance of 99 percent of the invoice’s value. Doing so allows the company to meet its immediate cash needs. Unlike a loan, factoring is invoice specific and is based on the credit strength of your customer. Re-payment of the factoring advance is when your customer pays the invoice. If you have accounts receivable or invoices for products shipped or services delivered, you can sell them today and receive the funds within 24 hours.

Why Use Asset-Based Lending?

Asset-based lending is not only for companies with inconsistent cash flow. ABL offers another avenue for companies that may be growing or need access to working capital sooner than later. Many companies who use ABL do so in order to get past a financial bump in the road or to complete a large order. Asset-based lending is a powerful solution to cover your short and long-term cash needs.

Ready to get started with asset-based lending? Contact us here.
 

How Can a Company Use Asset-Based Lending?

Asset-based lending offers cash flow solutions. One type of solution is a revolving line of credit, or simply, a revolver; this is the most common form of ABL. A revolver allows your company to request cash advances against accounts receivable and inventory, and repay the money borrowed over the term of the loan. If you can repay the full amount at the end of the loan, the revolver option will be a good fit for your company. The second form of ABL is the term loan. Instead of accumulating more cash to pay off at the end of the loan period, you can pay off your loan in set increments over the same period of the loan.

Besides obtaining a loan on your assets, there is the option of factoring, also known as A/R finance. With factoring, a company sells its accounts receivable or invoices to a factor at a discount in exchange for an advance of 80-90 percent of the invoice’s value. Doing so allows the company to meet its immediate cash needs. Unlike a loan, factoring is invoice specific and is based on the credit strength of your customer. Re-payment of the factoring advance is when your customer pays the invoice. If you have accounts receivable or invoices for products shipped or services delivered, you can sell them today and receive the funds within 24 hours.

Why Use Asset-Based Lending?

Asset-based lending is not only for companies with inconsistent cash flow. ABL offers another avenue for companies that may be growing or need access to working capital sooner than later. Many companies who use ABL do so in order to get past a financial bump in the road or to complete a large order. Asset-based lending is a powerful solution to cover your short and long-term cash needs.

Ready to get started with asset-based lending? Contact us here.