When considering commercial real estate, financing options are always an important consideration and may also sometimes be a concern. While there are many different options, one option to understand is asset-based lending.
In the most basic sense, asset-based loans are loans that are loans that are based on assets that are used for collateral. Typically, for a business, assets will include accounts receivable and inventory of the business. Asset-based lenders will commonly advance funds based on an agreed percentage of the value of the secured assets. The agreed percentage is typically 70 to 80 percent of the business’s eligible receivables and 50 percent of the businesses’ finished inventory.
There are many financial service companies that offer these types of loans so they can be helpful to consider for businesses contemplating a commercial real estate purchase or other acquisition. Banks and many independent finance companies may offer this type of lending and loan option. An asset-based loan may be harder for a young company to acquire but generally companies that have good financial statements, good reporting systems, commonly sold inventory and customers with a track record of paying their bills should have good chances of securing this type of loan.
There are positives and potential negatives to any type of loan, including asset-based loans, which companies considering one should be aware of. It is also important to carefully consider any legal requirements or drafting needs when applying for or contracting for an asset-based loan to finance an important commercial real estate opportunity or other opportunity.