Asset-based lending, once considered a last-resort finance option, has become a popular choice for companies that don’t have the credit ratings, track record or patience to pursue more traditional capital sources.
Because asset-based lenders focus on collateral, rather than credit-worthiness, they do deals that more traditional lenders shy away from. Borrowers put up equipment, inventory, accounts-receivable and other liquid assets in exchange for the money.
Asset-based loans can be a much-needed source of capital for companies that are rapidly growing, highly leveraged, in the midst of a turnaround or undercapitalized. Sometimes a company simply needs that infusion of cash to get over a financial hump or to keep growing.
These type of loans are especially well-suited for manufacturers, distributors and service companies with a leveraged balance sheet whose seasonal needs and industry cycles often hamper their cash flow. Asset-based loans can also be used to finance acquisitions.
Many small businesses that seek asset-backed loans are distressed companies, or have spotty or short track records. Asset-based loans can be a much-needed source of capital for companies that are in the midst of a turnaround or expanding faster than they can keep up. Sometimes a company simply needs that infusion of cash to get over a financial hump or prevent growth from stalling out.