Business Financing For Small Business

Small and Midsize Business typically take on these products as a means to obtain bigger and longer terms for the funding they take on. Debt Financing underwriting is typically line based financing meaning the past up of the company up until that day will be the sole basis for the financing offer. Asset Based Lending products allow companies to hedge of items like their receivables which can look forward beyond Line-Based underwriting. Large Corporations also take on Asset-Based Lending products to cover their short-term capital needs for a myriad of reasons. Urgency can be one of the major reasons sometimes the demand for capital may be extremely time-sensitive, utilizing Asset Based Lending can provide a quicker route to capital. For public companies it could be to avoid diluting their shares or avoiding the cost and long lead time of issuing additional shares or bonds.

Asset Based Lending occurs when funding is mainly based on the value of the assets being pledged as collateral. The terms and conditions of an asset-based lending depend on the type and value of assets offered as security to the lender.

Lenders usually prefer highly liquid collateral that can readily be converted to cash in situations where the company defaults on its payments. In general, the more liquid the pledged asset, the higher the loan-to-value ratio. In addition, lending that is granted under Asset-Based Financing never utilizes the full value of the assets pledged.

Interest rates on these products are less than interest rates on the average unsecured loan or line of credit because if the borrower defaults, the lender can seize assets and sell them to recoup its lending costs

Asset-based lending is often used by small to mid-sized businesses in order to cover short-term cash flow demands.

When a company cannot show that it can pay for a loan through its cash flows or receivables, the lender may decide to approve the loan based on the value of the entity’s assets.

Business could be awarded better financing terms by providing the lender with additional security by pledging collateral to obtain Asset Based Financing.