A primer of asset-based lending

A primer of asset-based lending

On Behalf of | Aug 29, 2019 | Commercial Real Estate |

Running a business can be challenging in a variety of ways. While securing talent and developing a business plan that sets one up for success may be difficult enough, these are just a couple of the numerous issues that business owners may face.

One of the more unexpected, and less desirable, problems that arise are those that are tied to money. Oftentimes, business owners find themselves in a position where they need cash to meet their business’s needs, such as by purchasing new equipment.

In other instances money may be needed to expand operations. Regardless of why a business needs funds, it’s critical to understand a business’s credit options before moving forward with any type of loan.

One common way that businesses secure capital is by seeking out asset-based lending. Through this type of lending, a business can take out a loan and put up its assets as collateral. The type and value of collateral that must be put up to obtain a given loan amount will depend on the circumstances at hand. Banks typically want to collateralize assets that are easy to liquidate so that they can easily sell them off for cash in the event that a business defaults on its loan, so less liquid assets may not secure as high of a loan amount compared to more liquid assets.

Just about any asset can be used as collateral in this type of lending, including commercial real estate. However, businesses shouldn’t be surprised when they see that a bank will only loan 50 to 75% of the asset’s value. This is to protect themselves in the event that they need to put in the time, effort, and money to sell the asset to recoup its losses.

So what does all of this mean for Baton Rouge businesses? To start, it means that they need to carefully consider whether utilizing asset-based lending furthers their business goals. For some small and medium sized businesses, it easily can.

For others, though, it is too risky. Second, Baton Rouge area businesses need to make sure they have an adequate asset protection plan in place to protect their business’s financial interests in the event of hard times. By doing so, they may be able to better ensure that they are able to commercial property, equipment, and cash in the event that they suddenly become overwhelmed with debt.