Securing a loan that aligns with your business’ operational needs and long-term goals is a key strategy to maximise opportunity, investment in your business and cash flow financing. Asset based lending, as distinct from Unsecured Lending, is a broad term for a variety of loan and security types. This form of lending empowers business to leverage their physical assets to obtain the funding you require for your business to thrive. Whether it’s to meet day-to-day operational expenses, fund commercial property purchase, equipment or machinery finance, support expansion into new opportunities and markets, or navigate through a financial rough patch, asset based loans can be a catalyst to propel your business forward.
Key Takeaways of Asset Based Loans
|What is Asset Based Lending?||A loan secured by an asset(s) such as property, equipment & machinery, accounts receivable, etc.|
|Who Can Benefit?||Businesses in need of working capital, or those looking to expand.|
|Why Choose Asset Based Loans?||Provides a flexible financing solution with typically lower interest rates than unsecured loans.|
|How to Get Started?||Engage with a financial service provider to match your needs with the right loan option.|
Understanding Asset Based Lending
Asset based lending is a financing solution where the loan is secured by assets. These assets could range from accounts receivable, inventory, machinery, to real estate. Essentially, the physical assets act as security for the loan, which typically results in lower interest rates compared to unsecured lending solutions. The value of the loan is often determined by the value of the assets being leveraged.
Various types of assets can serve as collateral in asset based lending, each with its inherent advantages and considerations. Vehicles, plant and machinery assets can be used to secure business loans with terms typically around 5 years. Property can be used to secure commercial bank funding, loans from fintech’s and even loans from private lenders who offer first and second mortgages.
Benefits of Asset-Based Loans for Businesses
One of the most compelling advantages of asset based loans is the provision of working capital solutions. Businesses often find themselves in need of immediate funds to cover daily operational expenses such as payroll, utilities, or supplier payments. Asset based lending provides a solution to working capital challenges, enabling businesses to meet these obligations promptly.
Few activities can starve business cash flow like a growth strategy where businesses usually need to invest in people, technology and infrastructure before seeing a return. Asset based loans can provide the necessary capital support to fuel business growth and expansion. By accessing capital tied in assets, businesses can invest in new ventures, increase inventory, or expand into new markets.
Asset-Based Loans Application Process
The application process for an asset based loan is largely determined by the type of loan you’re applying for and the kind of asset based lenders you select.
- Property backed asset based loans can be a ‘full doc’ or ‘no doc’ loan application process. Bank finance will typically require full financials on your business and your personal income tax returns and notices of assessment. Private loans backed by property, on the other hand, may rely on understanding your loan exit strategy and a statement from your accountant supporting your ability to service the loan but not require any financial data. Both bank and private lenders will require a valuation on the property to establish the loan will indeed be property backed but private lenders do not carry out credit checks.
- Equipment finance asset based loans are often ‘no doc’ applications up to a certain dollar value. Increasingly lender applications can be done with a read only access of business bank accounts with software that analyses business cash flow and determines serviceability. This kind of application process is ideal when you need a fast outcome and can be used for equipment finance applications up to $500,000. Larger equipment finance applications can require full documents and a cash flow forecast to demonstrate serviceability and when not buying from a dealer or raising capital from assets you already own a valuation will normally be required.
- Invoice finance, also known as debtor finance or factoring, is an asset based loan secured by a business’ accounts receivable ledger. The application process will be based on an assessment of the business financials and analysis of accounts receivable and accounts payable. This assessment will take into the account the strength of the business and the creditworthiness of your customers and the credit score of the director. Some invoice finance providers can have facilities setup within 1 – 2 weeks whereas others can take 2 – 3 months. If you need a fast solution you should understand your asset based lender’s turnaround times before making an application.
Case study: $600k capital raise for a competitive advantage (equipment assets as security)
Our client had purchased manufacturing machines at auction they knew they could repurpose and create a product they needed to previously import from overseas. This equipment, once operational, provided the capability as the only producer of this product in Australia and would give them a competitive advantage.
Requiring $600,000 to bring the assets online the business owner had been told by a previous broker they would need to put the family home on the line to raise the level of capital required.
We could see a business finance solution that didn’t require property.
Looking at the business owners asset register we were able to raise $600k against their existing machinery assets using forecasted earnings to demonstrate serviceability. It was a great outcome that significantly strengthened capability and brought an exciting project to reality for our client.
Work With An Expert for your Asset Based Loan
Asset based loans present a viable and often beneficial business finance solution for many businesses. By leveraging assets, business owners can unlock essential capital to keep operations running smoothly or to invest in growth opportunities. The flexible nature of asset-based lending, coupled with typically lower interest rates, make them an attractive option for business growth.
To work with an expert for your asset based loans contact us here.
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