We all know the saying; it takes money to make money. All businesses need money. It is universal. Supplies, materials, equipment, staff, rent, and fuel: not only is nothing free, but the costs also seem to keep going up. Owning and operating a business, whether a commercial venture or an agricultural enterprise, is a dynamic, exciting, and often exhausting endeavour. Your business will go through many peaks and valleys, times of prosperity and times of intense stress. Even when you have a healthy banking relationship with your primary lender, there may be times when you need more capital than the bank is willing to support. An asset-based loan is a form of bridge financing, shorter term (3-18 months), backed by sufficient collateral security to address an immediate cash need. The ability to access additional capital can allow the business to not only continue to operate but grow.
How is Asset-Based Lending Different from Working Capital Loans or Business Loans?
An asset-based loan may still be used for working capital and as such is still a form of a business loan, but the basis for qualifying for the loan and accessing the additional capital is based primarily upon the asset valuation of the collateral offered as security, and to a lesser extent, upon the cash flow or income of the business. It is most often utilized as a short-term loan solution with little to no covenant requirements. The cash flows of the company may be considered as part of the risk consideration, which may impact the interest rate of the asset-based loan, but it is secondary to the value of the collateral being provided to secure the loan.
Regular working capital loans, or demand loans, will often have covenant requirements and reporting requirements, and will fluctuate based upon various factors such as the monthly value of accounts receivable or inventory. Obtaining a sufficient operating loan will often require strong cash flows and a history of positive net income. In providing a working capital loan, a financial institution will rely upon past income, projected future income, and cash flow management of the borrower.
An asset-based loan works well for a company with a strong balance sheet and high-quality assets, even if they have unpredictable cash flow or tighter margins on their income statements. Because asset-based lending depends on the asset itself, a non-company-owned asset can also be used as collateral, for example, a principal of a company can use their personal assets, such as real estate, as collateral to obtain the financing for the business. It is the quality of the asset, the valuation of the asset, that will determine the amount available to lend to the business.
Who is Asset-Based Lending Best Suited For?
Asset-based lending is best suited for a company that is growing at a fast pace, is already highly leveraged, or simply has an immediate need for cash that they are unable to obtain through traditional lending in a timely fashion. It is a secured loan backed by collateral, which then provides the borrower with the flexibility to utilize the funds as they require, such as for working capital, debt refinancing, acquisitions, or any number of business needs. Ultimately, asset-based lending is an excellent, non-traditional lending option that offers flexibility based on asset valuation rather than cash flow projections. An asset-based loan can take some of the liquidity pressure off the business owner giving them time and space to focus on growth and meet their business objectives.
HP CAPITAL DELIVERS FAST ASSET-BASED LENDING SOLUTIONS
To quickly and effectively overcome your financial hurdles, connect with HP Capital for a personalized and competitive asset-based lending solution. We have a streamlined process that enables us to offer timely answers and get your business on the right path with minimal disruptions.
Our approach involves a few simple steps; evaluating your current requirements and available assets, devising a customized direct-lending plan, conducting all necessary appraisals and due diligence, and finally disbursing the funds with minimal delay.
With our bespoke direct-lending strategies and adaptable formulas, you can access bridge financing that fits your business's precise needs, whether it's funding equipment for expansion or seizing growth opportunities to avoid financial distress or insolvency. Connect with the financing experts at HP Capital by calling (403)630-8640 or through our online form.
Many types of assets qualify for asset-based lending. The most common ones are land, buildings, personal residence, machinery, and equipment. The amount available for the loan will be dependent on the quality of the asset as determined by a third-party valuation.
Interest rates are determined, in part, based on the risk of the loan. The risk rating of the loan will be part of the due diligence process which includes the valuation of the assets, the type of assets (meaning how specialized an asset it is relative to the industry), as well as the history of the company itself.
Yes, the asset will be used as collateral against the loan and the lender will register security against it. So long as the loan is ultimately repaid within the agreed-upon time frame, the lender will not enforce their security or seize the asset.
When you need immediate financing to regain working capital stability or to pursue growth opportunities, HP Capital delivers fast and flexible, asset-based financing solutions across a number of industries. We can support you with short-term bridge loans up to $2.5M with competitive rates, terms and a quick, streamlined approval process. Connect with our expert loan team today.
