Some types of loans are situational, providing great help in some circumstances but not in others. Asset-based lending can offer significant financing, fast approval, and flexible terms, but not all companies are a good fit for this kind of loan. How can you tell if your business should use ABL financing?
The Basic Qualifications
First, you need to make sure your company has the necessary resources for asset-based lending. Unlike traditional loans, which usually base approval on factors such as your credit score and cash flow, asset-based loans revolve more around collateral. Even if your business has less-than-ideal credit, you can still get a loan if you have valuable collateral.
In case you’re wondering, collateral refers to business assets that act as a guarantee for loan repayment. The value of these assets must cover the entire cost of the loan, plus any fees or taxes related to the transactions, also called closing costs.
What type of collateral do you need? Many lenders are willing to accept equipment, real estate, or inventory. Vehicles may count as well, but it depends on the condition and type of vehicle. To be a good candidate for ABL financing, your business needs to have one of these types of collateral available.
Common Industries Where ABL Financing Works
Asset-based loans are common in several industries. For example, construction businesses often have heavy machinery that is paid off and perfect to use as collateral for a loan. Manufacturers also frequently use machinery to acquire capital.
Distributors and sales companies can use inventory to get financing for business growth. Some healthcare companies, such as doctors or dentists, take advantage of their medical equipment to take out a loan for expansion.
ABL financing is especially common in the world of real estate. Property developers and house flippers commonly turn to asset-based loans to buy and improve residential and commercial investment property. This type of loan can cover the purchase of the property, the costs of renovations, and payments to workers. With the profits from the sale, it’s relatively easy to pay off the loan.
An Easy Source of Short-Term Financing
The key to using asset-based lending properly is remembering that it involves short-term loans. It can help your business generate revenue when you purchase things that deliver a good return on investment relatively quickly. That way, the revenue you receive helps you make loan payments and turn a healthy profit in addition.
If your business could benefit from ABL solutions, contact the team at Mai Capital today.