Asset Based Loans can be described as loans that are based on the use of assets, accounts receivable, and inventory, as collateral. With Asset Based Loans (ABL), you will put your present and future business profits on line in order to gain access to business financing right now! The asset-based lenders will advance the funds based on an agreed profit percentage of the value of secured assets. The borrowing capacity of your business will generally affect the amount of working capital that you can obtain from an asset-based lender. This type of business financing can impact your business in the following ways;
Increase the Business Capital Strength
One sure way the ABL can impact your business is that it will increase your capital strength. Companies will require funds for the daily operations and growth of the business, and on a cost-effective basis too. With new sales generated calls for more liquidity as a business owner, you will need an upfront capital and the ability to support more running expenses on your company.
With Asset Based Lending, you can provide funding for both expansion and operations. This loan will also help you manage efficiently the highs and lows of cash flow. There are days your business will need a little push through the infusion of cash in order to get over financial obstacles. Asset Based Loans are also ideal for business acquisitions for business growth.
Rapid Growth Assistance and Sustenance
As a business owner, you need to ask yourself the question; Is my business growing fast enough? If you are truly experiencing rapid business growth, contacting an asset-based lender is one option you should seriously consider if you want to meet up with your business growth agenda.
If your business is witnessing rapid growth, you may ask yourself why do you need an ABL? The reason is simple, rapidly growing businesses will tend to burn capital quickly and business owners may be left with insufficient working capital to support business growth.
If you don’t have sufficient capital to meet up with business growth, you may be tempted to go for the traditional loans from banks. While it is possible to qualify for other traditional loans, the process of getting a loan approval can be very slow. In addition to slow processing time, the credit line for traditional bank lows may be restricted to a small ration of your capital base, which makes it inefficient for running a rapidly expanding business.
Realistically, not having enough working capital when your company is growing can cause a stunt to such growth.
ABL Makes Positive Impact on Your Customer and Vendor Relationship
Business owners must be able till up customer orders as fast and efficiently as possible, or they may lose customers to their competitors. Asset-Based lending can actually help such business owners to resolve this issue before they even come up. When you take up an ABL you will have a quicker asset to capital that will help you offset outstanding loans to your vendors and get more supplies to meet up with product demands of your customers, thus eliminating long waiting times.
Traditional bank loans will take time to process and your applicant may be rejected at the end of the day, thus you may not meet demand supplies of your customers because you didn’t have sufficient capital to pay your suppliers. Getting an Asset-based loan for urgent issues will help protect your customers from being snatched by your main rivals.
Maintenance of Inventory
Another positive impact an Asset-based loan will make on your business is that it gives you control over the maintenance of your business inventory. Maintaining your business inventory can be capital intensive and it could be a pressing issue for you especially when you are short of capital and your products are not moving fast enough.
Business owners, manufacturers, and distributors will have to pay their suppliers and also cover their running over-head costs even when the revenue is not coming in fast enough. An asset-based lender may come in at this stage to rescue by providing a necessary fund to help manage inventory better for business sustenance. Cash flow issues can mess up with inventories but with financing to continue your daily operations, you can maintain the desired pace and capacity for business growth.
You, Will, Become Mindful of Receivable Quality
The chances of security an equity-based loan is as good as the quality of your receivables. While commercial lenders will have to check through your customers as an auditory step to see those who pay in less than mandatory 60 days and those who have great credit ratings before they decide to approve your loan. sometimes, your sales to individuals and small business owners may not qualify for eligible receivables for business loans. Make sure you keep in mind that the quality of your receivables may determine whether you qualify for traditional loans or not.
Though there is a more positive impact of ABL on businesses, one should also consider some of the negative impacts of such loan. The fact that the loan is equity-based means that you may have to meet ridiculous targets set by the equity lenders, especially when it comes to profit margins. Lenders want more profit for their investment, for this reason, you may be forced to increase staff strength and produce more quality goods and services to meet up with customer demands and lender’s interests.
In some cases, asset-based loans can cost more than traditional business loans on the long run but it is worth it if you get the loan fast and your business expands so rapidly and you are using part of the profits generated from running the business to expand the business for enhanced growth and development. The interest rates payable on Equity loans may not matter at the end of the day if the sales and profit margins are constantly getting higher. Though Equity based finance can be a lot easier to obtain than traditional loans, you still have to shop around to discover the ones with the most favorable terms and conditions.