Business Funding Secrets
Business Funding Secrets

Asset Based Loans

Asset based loans are any kind of loan secured by an asset. If the loan is not repaid, the asset is seized by the lender. A mortgage is an example of an asset based loan. However, the term is used more commonly to describe business lending.


Terms for asset based loans are usually for a short period of time and interest rates may be higher than conventional financing. However, these loans are often needed by companies that would not have their required funding needs met by a conventional loan process.


Real estate, accounts receivable, inventory, machinery and equipment are the typical assets that secure the loan. However, assets such as things like the value of pharmacy script files, a trademark, or whole assets of intellectual property may also be considered in an asset based transaction. The loan may be secured by a single asset or a combination of assets.


Asset based lending, sometimes referred to as "equity based" lending, is easier to obtain for borrowers who do not conform to typical lending standards, because the lender is secured by the equity of the asset and not the company’s past credit history. This type of lending can be pursued when normal avenues of raising funds hasn’t worked, or the company is in a financial position unattractive to conventional lenders.

Asset based loans can provide the funds allowing a business the ability to capture a quickly developing  market opportunity, absorb the costs of an acquisition, assist in leveraged buyouts, or provide a line of credit to bridge financially difficulties the company is experiencing.


An asset based business line of credit can allow the company to bridge itself between the timing of cash in-flows and cash out-flows. Cash flow issues usually revolve around accounts receivables. This requires the lender to monitor and audit the company’s accounts receivables, but this also allows the borrower the ability to obtain larger lines of credit.


With the current world wide lending difficulties, whether a business owner, or a Consultant pursuing funding for a client, asset based loans need to be considered as a possible solution when conventional financing is not going to work.


Tips:


1. There is a lower cost of capital for asset based loans than factoring.
2. Conventional loans require debt to equity ratios of 4 to 1 or less. Asset based lenders may allow ratios of 10 to 1, or possibly higher.
3. Asset based lenders may require day-to-day monitoring of the receivables where factors may require total control of the receivables.


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It has been reported that some lenders have made more money in their asset based loan programs than with their conventional lending. Read more on the expansion of Asset Based Lending.


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Need a source for an Asset Based Loan?


The Project Corp

$100,000 to $10,000,000

Secured by Receivables, Inventory, Real Estate,

Machinery, or Equipment.


Commercial Finance Association (New York)


Turnaround Management Association (Illinois)


Asset Based Finance Association (United Kingdom)


Have legal questions regarding Asset Based Lending? Contact one of the most knowledgeable asset based lending attorneys in the country.


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Business Funding Secrets

It is the intent of the Business Funding Secrets newsletter to provide tips, techniques, and advice on getting business deals funded.


Whether you are a person looking to fund a business, or a Consultant who submits deals to funding sources, we want to stress to you how important it is to have your Funding Request along with all the other documentation, be clear, concise, and specific.


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E-mail Replies

If you have questions about funding a project do not reply to this e-mail address. Contact: theprojectcorp@msn.com  with your Funding Request.



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