Asset lending is a term that describes a loan that is made against the security of an asset, such as business premises, equipment, stock or a house. The security means that the asset can be sold to repay the loan if the regular repayments can’t make.
More commonly, the phrase is used to describe lending to business and large corporations using assets not normally employed in other loans. For example, these loans tied to inventory, accounts receivable, machinery or equipment.
This type of loan can provide by boutique lenders, large investment banks, conglomerates or even regional banks.
In this article, we explain more of the facts around asset lending and asset loans for businesses.
How Does An Asset Loan Work?
Typically, an asset-based loan will create a business line of credit that works similarly to the way that short-term finance or a bridging loan may work. That is, to cover short-term cash-flow problems. The line of credit may either have a set limit, or a “revolving line of credit” that based on the accounts receivables that are still outstanding for that particular business. If the firm has a revolving line of credit, the lender would continually monitor and audit the company to ensure the line of credit is in line with the accounts receivable.
When is An Asset Based Loan Used?
Asset Lending typically used for businesses that have short-term cash-flow problems but is also commonly used for commercial real estate financing. Asset-based lending is used with all size companies and can allow a wealthy asset corporation to receive funding when they are experiencing a need for growth or have not met standard liquidity or credit requirements.
What Is The Difference Between An Asset Based Loan and Bridging Finance?
As described above, an asset-based loan can often secure by assets, including a businesses’ accounts receivable, inventory, machinery or equipment. An asset-based loan may be agreed for over a short, medium or long-term time frame and may or may not include higher interest rates than other loans.
So if it is true that financing is the key ‘ lubricant ‘ in that growth funding depends on, and if the business owner’s don’t have the ability to fund their firm personally, what are in fact the options? In reality, there are more than you think, see more info.
We never fail, or at lease try not to fail at pointing out to business owners/managers that internal cash flow generated from asset turnover is a key to growth finance. It’s just that they are never enough! And if you’re not big enough to go public yet, or engineer a reverse takeover then financing financial assets is, in fact, going to be a key driver in your revenue and profit growth.
Bridging finance may also be backed by an asset, such as other real estate or equipment. However, in contrast to an asset-based loan, bridging finance is only meant to be a short-term loan and is based on a set line of credit (as opposed to a revolving line of credit). Typically bridging finance will cover a short period until the cash flow has improved or an alternative medium to long-term loan established.