Asset-based Lending Vs Cash Flow Lending

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Choosing a finance option for your business can be overwhelming. Wading through the possibilities and limits of traditional lenders and alternative loan structures is both time-consuming and confusing. When it comes to navigating the loan market, small business owners are held up with an onslaught of documentation and small print at a time when they need simplicity and quick access to cash.

Under the broad umbrella of Commercial Finance, business loans can be accessed against a couple of different business metrics — assets (Asset-based Lending) or cash flow (Cash Flow Lending)

Understanding Asset-based Lending

What is a Secured Loan?

A secured loan is basically a loan that is backed by a personal or business asset. If the borrower defaults on the loan amount, the lender can take ownership of the asset offered as collateral to recoup their losses.

What is an Asset-based Loan?

Asset-based lending allows a business to borrow money against one of their balance sheet assets. For example, physical assets such as real estate property (residential or commercial property), land, equipment, inventory, vehicles, machinery, other physical assets (regardless of whether they are liquid assets), or other eligible collateral.

When accessing funds backed by your assets, there will likely be a maximum loan to value ratio (LVR) which states how much of the equity you can access from your asset. For example, if you have $1,000,000 equity in a commercial property and the LVR is 70%, you can borrow up to $700,000 against the value of the property.

Understanding Cash Flow Lending

While Asset-based Loans are strictly secured loans, Cash Flow Loans can blur the line between secured and unsecured loans. Some types of Cash Flow Loans, such as Invoice Finance, technically fall into Asset-based Lending because the accounts receivable ledger (a balance sheet asset) is used as the security asset. However, the expected future cash flow component of accounts receivables means that it can also sit under the Cash Flow Lending umbrella.

What is a Cash Flow Loan?

Cash Flow Loans bring forward revenue recognition of expected future company income. They allow you to access your future payments before the cash has actually arrived in your bank account.

Cash Flow Finance can be particularly beneficial for cyclical or seasonal businesses who experience a dip in sales for certain periods of the year. It’s also handy for businesses that offer long credit terms or experience slow paying customers.

After issuing an invoice to a customer with, let’s say 30-day terms, many businesses experience cash flow constraints in this period while waiting for their customers to make payment. With Invoice Finance, the business owner can access a portion (up to 85%) of the value of the outstanding invoices. Once the customers pay their invoices, the amount of finance that’s been utilised by the business is repaid, and the balance will be sent to the business.

How to choose between Cash Flow Lending and Asset-based Loans

There are different scenarios where certain finance products will be better suited — it really comes down to your finance needs.

If you’re a business struggling with cash flow, and you have expected future revenue, Cash Flow Lending might be the best option. On the other hand, if you’re a business needing to raise capital for a particular lump sum payment or investment (such as ATO debt, acquiring a business or purchasing stock), an Asset-based loan might be right.

Enlisting the service of our trusted commercial lending specialists means you get to talk to a person who understands your needs, your loan requirements and your payment schedule terms. Cash flow lending or Asset-based finance are not a one size fits all solution. That’s why we provide a range of options tailored to your business.

At, we help you understand and compare each lending option so you can make the most informed decision. Breaking free from the shackles of traditional lending criteria is possible, and it doesn’t mean paying vast sums of interest or being hit with unexpected fees at the end of the loan period.

Request a quote today to learn how we can help your business.

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