Bank loans are exceptionally difficult to become approved for, particularly for small businesses. Whether your company doesn’t have the necessary financial history or your credit score is too low for a bank loan, consider how asset-based lending can provide the working capital you need to help your business thrive.
Asset-based loans are provided by a variety of financial institutions. These applications tend to be more flexible than bank loans, so you have opportunity to explain your particularly situation with your lender. You may find you’ll receive a better rate after explaining your financial goals and the current obstacles you’re facing that may be affecting your credit score.
Successful asset-based lending requires a strong relationship. Whether you’re seeking a short-term, one-time loan or need a lengthy period of lending to launch or restore your business, it’s essential to find a lender who understands your financial situation and can offer you the best terms.
Be sure any loan provider understands your situation and always communicate any financial hardship you’re going through or may go through during the loan term. Many lenders are willing to work with you when you’re unable to make a payment, but an unexpected missed payment can make it difficult to receive financing in the future.
Sometimes this communication isn’t in your control. Your lender may require you to submit detailed financial statements. Income, expenses and inventory levels should all be accounted for to help your lender get a clear picture of your current financial situation. This helps them to see any potential financial issues that you may not see yourself.
Like most business relationships, a successful relationship with your asset-based lending institution requires mutual respect, clear communication and detailed planning. While it may be tempting to obscure certain details or hold back details regarding a financial hardship, clear communication from the beginning can help you receive the loan you need. You may be surprised with the amount of flexibility that you can receive with your asset-based loan.
Once you’ve chosen the asset to back your loan, you’ll be able to receive capital equal to a certain percentage of the asset, depending on the type of asset you’ve chosen. Real estate is a common way to back your loans, but you can also use inventory, machinery or other equipment as collateral. This type of financing allows you to respond flexibly to your current and future financial situation with a healthy amount of working capital.