Most small business owners face many difficulties while trying to get approved for a bank loan, which drives them towards alternative options, like asset based loans. But, if you have done your homework, you will find that in most scenarios, an asset based loan, which is a type of secured business loan, is the best option for most emerging businesses.
Here we list five important reasons why you should give further thought to approaching an asset based lender:
1. Your Revenue Or Credit History Is Less Than Stellar
Asset backed lenders don’t usually concern themselves with a business’s past profitability, cash flow or even your personal credit history as compared to most other financial providers who offer unsecured loans. Your eligibility for a loan is mostly determined by the value of the asset you are offering as collateral.
It is an important reason why this type of finance is increasingly being considered as an effective alternative for emerging small business owners and owners with a poor credit history.
2. You Need A Quick Influx Of Capital To Meet The Demands Of Your Growing Business
Growing businesses are often in need of additional working capital to keep up with all of their demands. But it can be very difficult for new enterprises to secure a business loan from a bank as they usually demand strong revenue streams and a minimum tenure of the business as part of its eligibility criteria.
Asset backed lenders on the other hand prioritise the future of your business when determining eligibility instead of digging around in your past. They will take a closer look at your business’s cash flow projections and sales forecast and try to develop a stronger relationship with you in order to ascertain whether or not you can become a prosperous business owner.
This is great news for you if your company is currently in turbo growth mode or if you feel that your current performance is not a true reflection of your overall potential.
3. You Can Make Better Use Of Your Business’s Important Assets
There might be a few valuable assets hiding about on your company’s balance sheet that would be valuable to the right lender. Regardless of whether it is equipment or machinery, outstanding invoices, inventory or even property, you can leverage the value of these properties as collateral to secure the additional working capital that you need.
By teaming with the right asset backed lender you could be accelerating the growth phase of your business by capitalising on investments made by your business previously.
4. Personal Risk Involved Is Minimal
Most conventional lenders will ask you to provide collateral or sign a personal guarantee, to ensure repayment in the unlikely event of a default. Since you are offering assets you already own as collateral for an asset backed loan, the personal risk involved is minimal. No asset based lender will ask you to sign a personal guarantee for a loan, but it is still prudent to check beforehand.
5. You Are Provided With A Flexible Financing Solution
This type of loan has a similar financial structure to the more conventional lines of credit offered by banks, which makes it one of the more flexible options to counter cash flow problems for a business. As with a conventional line of credit, you can withdraw the money as and when you require it.
You will only be charged interest on the amount you withdraw, which is in stark contrast to a term loan wherein you are obligated to pay the amount in full along with the interest accrued on it, irrespective of whether or not you have accessed all the funds.
Here are a few additional ways you can use your asset backed loan:
- To meet for operational expenses
- To take over a rival business
- To refinance your current line of credit
You will have to convey how you intend to use the funds, when you fill out the loan application. The lenders own guidelines may determine whether or not your loan uses are eligible. Typically an asset backed loan is a considerably more flexible financing option compared to more conventional forms of finance, especially bank loans who usually enforce strict qualifying criteria coupled with a long approval process.