Asset based lending can immensely benefit those companies, which are crippled by sudden cash crunch. It is a viable way of meeting their immediate resource needs. This rapidly growing method of funding helps businesses use their assets, in order to solve their problems of cash flow shortage. Expanding companies in urgent need of ready currency have made asset based lending highly popular.
Manifold Benefits of Asset Based Lending
Asset based lending offers a number of advantages to small or large businesses. Compared to traditional modes of loans, they get a quicker access to fairly large amounts of ready cash. Most asset-based lenders and factoring agencies also frequently offer valuable services, such as accounts-receivable processing, invoicing, and collection services. As is well known, a properly managed accounts receivable portfolio can expedite cash flow and support corporate cash requirements leading to increased working capital. As a result, there are fewer outstanding account balances, which mean fewer bad-debt write-offs, as well as enhanced profitability.
Similarly, invoice factoring provides you with working capital leading to improve your business credit. Thus, you are able to turn your accounts receivable into a strong, predictable source of working capital. These days, a large number of asset based lenders help businesses, not only with credit facilities, but they also help in invoice purchasing, accounts receivable management, credit protection, collection services, outsourcing, letters of credit, and international trade services.
In many cases, a prospective borrower does not have to be necessarily a profitable enterprise or to have a minimum net worth. A commercial venture with tangible assets and qualified management can use its assets to create extra capital, in order to execute its plans for the expansion of its business. They are permitted to use the types of collateral such as accounts receivable, inventories including marketable raw materials, machinery and equipment, owner-occupied real estate, personal assets as well as certain intangibles.
It is the boon of asset-based lending, that today even small companies can get not only more cash, but can also get it more quickly than they could from a traditional bank. Among other key benefits are the facts that asset based lending is a non-bank lending. It does not confine growth, but encourages purchase of capital equipment. It is flexible and provides higher advances against collateral, and does not mandate any additional security, such as personal assets, or warrants against subsidiary stock.
Today, it is widely available with no geographical boundaries either. As a matter of fact, asset based lending gives an impetus to activities, such as reorganizations and debt restructures, capital equipment purchases, mergers and acquisitions, seasonal cash shortfalls, turnarounds, debtor-in-possession loans, amongst others.
At this juncture, it may be relevant to throw a glance at the legal aspects of asset based lending. It is a well known fact, that asset based lenders have a certain amount of liability, the breach, of which in the past, has earned quite a few borrower plaintiffs legal awards, well into millions of dollars. Over the years, borrowers have used their right of suing the lenders for the transactional losses incurred by them. This gives a profound sense of psychological security to a prospective borrower of asset based lending.