How Does Asset Based Financing Work?

When a bank decides to give a company funding, what they are really doing is giving the business asset based funding. Almost all loans, advances, financing are asset-based. Even if you choose an unsecured business loan, the bank is looking at your business overall as an asset. Ultimately, lenders do not want to collect on collateral unless they need to. As a result, they are betting on you and your assets. Asset based financing for businesses ultimately means funding based on your accounts receivable or inventory that can be used as collateral.

Whenever you take a loan out you are putting your business on the line. Both lenders and borrowers are taking a risk. Lenders are concerned the business won’t pay them back. Borrowers are worried what happens if they can’t pay the lender back. Let’s take a moment to break down what asset based lending actually entails.

So What Is Asset Based Financing?

Asset based financing will typically take advantage of your business’s unpaid invoices or accounts receivable. Most asset-based lenders are looking for a secured asset, not a future asset.

Generally, asset based financing lenders and borrowers agree on a specific percentage of the unpaid invoice to get in cash. Often times this is between 70 and 80 percent of the full value of the invoice. The lender is hedging their risk by not giving a larger percentage. In some cases depending on a number of factors, a borrower might be able to receive close to 90%.

Factors That Can Help Determine The Amount Of Cash You Receive Include:

• Age of the Invoice
  • Newer invoices will receive a higher value.
• Credibility of the Client
  • Depending on who the client is that owes the money for the invoice can help or hurt the value you can receive from an asset-based lender.

Pros: This type of funding will give your company access to funding quickly so that you can move on with running your daily operations. It is much simpler than a traditional bank loan to apply for and can get your business to the next level.

Cons: Lenders are going to dig through your accounts receivable to find your best ones. They are going to look for a quick return on their lending as well. Your invoices with less than 60 days left to pay are going to be the ones that will appeal to the most lenders. Because of the risk associated with this kind of funding, you can lose out on a large percentage of your cash flow.

Because business asset based lending is risky to companies it can make some businesses nervous. They also will cost more than traditional financing from a bank. Depending on your lender the interest rate can vary. Often times you can expect to have your clients pay your lender directly instead of the money running through you and then to the lender. Often times this is an uncomfortable situation to owners who no longer control their own business’ finances. Especially if you continue to use asset-based lending. For this reason, you may want to look at other funding and financing options out there, like merchant cash advances.

Asset Based Alternatives

eBusiness Funding helps businesses that may struggle with traditional lenders. To do this, we provide merchant cash advances that are accessible to a wider spread of businesses than bank loans or private lenders. 95% of businesses that meet our simple requirements qualify for funding. All you need is to be in business for at least six months, with over $10,000 in monthly revenue. With us, it’s not about past credit history or collateral, but about your business’s potential.

It’s important to us that you use the funds we offer in the most helpful way possible, so we place no restrictions on how you spend our advances. Payroll, expansion, repairs, spend on what you need! We also get you your funds fast, sometimes as soon as 72 hours after you first apply. Repayment is also very simple. Rather than large monthly payments, we take an established percentage of your future sales. This is set up by our skilled consultants. This percentage stays the same, so if business slows down, you pay less.

Interested? You can begin right now by filling out this simple contact form. We’ll be waiting, and look forward to helping your business get the funding support it needs.

Business Asset Based Loans – How They Work

Whether you are a new business owner or have been in business for years, you probably have experienced the challenge of getting a loan in today’s market.  It is not uncommon for most business owners to be turned down for a business loan by a bank. That is due to enhanced regulations over the past few years. Banks are unable to lend to extremely risky borrowers and have to go through a due diligence process to ensure you are a credible borrower.  That is why business asset based loans were created.

What Are Business Asset Based Loans?

In simple terms, a business asset based loan is quick funding that is provided in exchange for your accounts receivable and inventory which is held as collateral. Asset-based lenders in this model are generally looking to make a quick profit.  They will analyze your current invoices and determine the amount they are willing to offer you for them. Typically that percentage will be 70 to 80% of the original value of the invoice.  This will be determined by a number of factors. These factors include:

• Age of the invoice
• When it is due to be paid
• Credibility of your borrower

This type of funding is considered a secured business asset based loan because it is tied to your business’ assets.

Why Should You Consider Business Asset Based Loans Over A Traditional Bank Loan?

The process of applying for a bank loan is extremely challenging for some businesses.  It can also be quiet lengthy. A bank is going to make sure you are a credible borrower before approving you for a loan. Their requirements include:

• High credits score for both the business owner and the business.
• A lengthy business history that typically is longer than two years.
• A well-defined business plan that details how you plan to grow over the next three to five years. This will also include a detailed plan of how you will spend the money that is loaned to you.

Not all businesses have a bank approved reason for the funding that a bank will loan on. Sometimes, a business owner is looking to make payroll for their employees because they have a lot of outstanding invoices. These are the type of businesses that should take advantage of business asset based loans.

The Pros of Business Asset Based Loans

• This funding source can get you the funding you need fast!
• You do not have to jump through all the hoops you will have to for a bank.
• Spend the funding the way you want too.

The Cons of Business Asset Based Loans

• There are usually higher fees associated to this type of financing.
• You are giving up a portion of your unpaid invoice for the benefit of getting the cash you need fast.
• You can lose control of your clients paying you directly as some providers will require the funds be paid directly to them.

If you do not like the idea of giving up a portion of your unpaid invoices to a lender but can’t get a bank loan, there are still options for you. One alternative lending option that you should consider is a merchant cash advance. This option is great for businesses that do a lot of credit card sales such as restaurants or auto shops.

A merchant cash advance gets you the cash you need fast. At eBusiness, we can get you the cash just three days after you apply through our simple online form! Instead of taking a portion of your unpaid invoices, we will take a fixed percentage of your daily credit card transactions. This will happen until the advance has been paid off.  This is a great option for those who are looking for cash fast and want to have the freedom to spend it the way their business needs.

Get Started Now

We have made it simple for you to get business asset based loans in a non-traditional way because we are not going to hold collateral against you. Instead we are betting on your future assets and will advance you the funds you need. Why not get started with our online application today? And in three days, start working towards your business’ future.