Asset Based LendingWhen starting a small business, there are several loans to choose from but you may not always qualify for them due to your business credit rating and your personal credit rating. Since small businesses are a high risk, you may need to look into a different type of loan. Asset based lending is quite common amongst small businesses because it is seen as the lowest possible risk to the lender.
Asset based lending requires you to front some type of collateral that is used to secure the loan. Since most small businesses do not have a lot of working capital and business assets, they often turn to their personal assets. If you are mixing your personal and business finances, be extremely careful. Defaulting on a loan could leave you out of business, but it can also leave you out of a home as well. Choose the asset with caution as you may be getting in over your head by fronting your home or sports car as collateral for your business.
The amount of money you can borrow is completely dependant upon the asset you front as collateral. Choosing an asset that depreciates will be factored into the loan and you will not be given as much money.
With asset based lending you will also need to pay higher interest rates from a traditional small business loan. This is because you are probably considered a high risk to the lender as asset based lending is seen as a last resort to finance your small business.
What are some business assets you can use to secure a loan? Here are a few of the most common:
- Accounts receivable. Selling off your invoices to receive cash now is a great way to get the money you need. You can also use your monthly credit card sales to acquire financing.
- Real Estate
- Future cash flow projections based on a new product launch or a company merger
With asset based lending you have a few different loan options. You can receive one large lump sum of money to help improve your small business now or you can choose to go with a line of credit. A line of credit will approve you for a specific amount and then you can borrow from this line of credit as you need it. You will only be charged interest on the amount of money you borrow versus the entire amount even if you don't end up using it all at once.
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When starting a small business, there are several loans to choose from but you may not always qualify for them due to rating and your www.corporatecreditconcepts.com/businessCredit.html personal credit rating.