About 50 percent of small businesses rely on loans to finance their operations.
If you’re thinking of getting a small business loan, you’re not alone. And, you’re making a savvy move. Although there are several funding options, debt is easily accessible and as long as you put it to good use, you’ve nothing to worry about.
However, there are a number of different types of business loans you can secure. One of the most common is asset-based lending.
If you’re not familiar with these types of loans, you might be wondering how they work and whether they’re a good fit for your business.
In this article, we’re sharing a useful guide. Read on!
What Is Asset-Based Lending?
To understand what asset-based lending is, it’s essential to know that, broadly speaking, there are two types of loans: secured and unsecured loans.
Unsecured loans are loans you get without needing to provide any form of collateral. The lender relies on your credit and income history to make a lending decision.
Secured loans are the exact opposite. You need to provide collateral before your loan can be approved. As such, asset-based lending is a form of secured lending.
Who Offers Asset-Based Loans?
You can find a secured loan in most banks and other lending companies.
That being said, there are companies, mostly online, that specialize in making asset-based loans. This is because secured credit carries less risk than unsecured credit.
If you take out an asset-based loan and default on it, the lender has every right to repossess the collateral.
Terms and conditions for asset-based credit vary from lender to lender. Some lenders charge higher interest rates while others offer lower rates. Some lenders won’t hesitate to initiate repossession processes as soon as you miss a payment, others will allow you some time to bring your account into good standing.
Is an Asset-Based Loan Right for Your Business?
As a business owner, you want to ensure you’re taking out the right loans for your business. If you don’t, your risk falling into a vicious debt cycle that can result in bankruptcy.
It’s essential to establish whether an asset-based loan is a good fit for your business before you start making an application.
First, asset-based loans typically carry a lower interest than unsecured loans. From this alone, your business will be better off with this type of loan.
Second, you can’t get an asset-based loan if you don’t have any sets to put up as collateral. But if you do own something like a house or a vehicle and it’s registered in the name of your business, then you can go in for an asset-based loan.
There’s a lot more to learn about these loans. So, read this complete guide to asset based lending for deeper insight.
An Asset-Based Loan Can Boost Your Business
You need funds to start, operate, and expand your business. Debt financing, although it incurs interest is a good funding source. What’s more, there’s asset-based lending, which you can easily qualify for if you own valuable assets.
Need more business tips and advice? Explore the rest of our blog.