What is asset-based lending?

What is asset-based lending?

On Behalf of | Jan 3, 2019 | Uncategorized |

It almost goes without saying that money makes the world go ’round. This is especially true in the business world. Without capital, a business may be unable to meet its needs as it attempts to grow and expand. Having adequate cash on hand is imperative to pay human resource costs, maintain inventory, improve commercial real estate, and expand into new markets. While a business would ideally have this cash on hand from its own profits, this isn’t always the case.

There may be many reasons for this. One common reason, though, is that cash is tied up in assets. However, a business is typically unable to sell off those assets to meet its cash needs because those assets are critical to the business’s functioning. In these situations, then, a business must figure out another way to secure the capital it needs.

This is where asset-based lending may be beneficial. Here, loans are issued to business with some of the business’s assets serving as collateral. The more liquid the asset, which means the more easily it is converted into cash, the more likely a lender is to accept that asset as collateral for a loan. This way if business defaults on its loan, a lender can quickly recoup its losses. While assets are put on the line through this type of lending, businesses can often secure lower interest rates because the lender has secured the loan through collateral. This can save a business a lot of money over the long-term.

Asset-based loans are not right for every business, though, as it may lead to the loss of pivotal assets when debts go unpaid. However, to those businesses that are well-positioned to make good on their debt, asset-based loans can be a great way to secure the funds needed to maintain and grow a business. Louisiana businesses that would like more information about or assistance with securing these loan can reach out to a legal professional who can help ensure that any agreements that are drafted are fair and favorable.