Is Asset-Based Lending Right for Your Business?

It is important you understand how asset-based lending works before you seek it so that you know what is required and have better chances of getting approved. Understanding how asset-based lending works will help you determine if it is right for your business.

Asset-based lending is suitable for small, medium, and large businesses that have collateral to give in return for financing. The type of collateral that is used for asset-based loans include commercial real estate, equipment, inventory, machinery, and accounts receivable.

What Do Asset-Based Lending Companies Expect?

Small businesses that seek an asset-based lending solution do not have the personal or business credit rating to seek traditional financing. Asset-based financing is an alternative way to fund a business using collateral as a promise to pay the lender back in the future. Asset-based lending companies expect businesses to have steady cash flow and collateral that has enough value to be used in return for financing.

The following documents and requirements are needed if you are seeking to apply for asset-based financing:

  • Recent balance sheet
  • In business for at least 12 months
  • Generate at least $15,000 in revenue per month
  • Recent profit and loss statement
  • Accounts receivable aging report
  • Last 2 years of business and personal tax returns
  • Last 12 months of business bank statements
  • Current business debt schedule
  • Business needs to be profitable/breakeven
  • Low personal scores are accepted
  • No recent late payments

Every asset-based lender will have different requirements, but these are the standard across the industry. Be sure to have all the above information prepared before you approach an asset-based lender. If you do not have the right information and documents, your application process will slow down.

Types of Businesses Asset-Based Lending Companies Fund

As previously mentioned, every asset-based lending company is different. However, typically the following industries are funded by asset-based lenders:

  • Construction companies
  • Commercial Real Estate
  • Ecommerce & Retail
  • Technology
  • Restaurants
  • Home Healthcare
  • Franchise
  • Security Services
  • Commercial Cleaning

Do not worry if your business does not fit in the list above. It is all on a case-by-case basis. What matters most to asset-based lending companies is the past, present, and future sales of the business.

How Much Capital Can You Get?

The amount of business capital that is obtained from an asset-based lender depends on the borrowing capacity of the company. Borrowing capacity is the amount of money a business can borrow based on the current financial state. Companies can borrow between 10 and 15 percent of their total annual revenue. Some asset-based lenders do have minimum amounts of borrowing.

How to Find an Asset-Based Lending Company?

There are lots of asset-based lending groups to choose from and it can be overwhelming picking the right one. The best way to find the right one for your business is to work with a financing expert. They will be able to analyze your business and financial situation to determine which asset-based lender is the right one for you. You will save a lot of time with this method because you do not have to spend hours navigating the Internet.

Alternatives to Asset-Based Lending

The alternatives to asset-based lending depends on many factors. Some of these include the following:

  • Business Location
  • Personal Credit of the Business Owner(s)
  • Annual Income of the Business Owner(s)
  • Current Outstanding Debt

The Bottom Line

No matter what type of financing you are getting whether bank, accounts receivable, asset-based or other types, lenders will check your financial situation and requiring for some documents. The documents have information that determines what alternatives you can use to finance your business.