5 Reasons Small Businesses Use Asset Based Lending for Working Capital
Asset based loans are generally used by businesses that require working capital and steadier cash flow. Small companies or businesses in the mid-sized range are the most common organizations to utilize this type of loan. Asset based lending comes with numerous benefits, allowing business owners to free up capital.
1. Works as a Stepping Stone
Typically, asset based loans are used when a company has outgrown the need for invoice factoring but does not yet qualify for a credit line. This transitionary period can be stressful because financing may still be required. Fortunately, asset based loans available, so businesses continue getting the funding they need while in intermediate growth.
2. Quick Notice of Approval
With certain types of financing, it can take weeks to learn if you were approved. If your company needs funding right this second, then this is not going to do you any favors. Conversely, requests for asset based lending get approved fairly quickly, so you will know one way or the other fairly soon.
3. Greater Flexibility
Asset based loans also do not come with a lot of criteria on what you need to spend the money on. As long as it is related to your business, you can spend it on anything you want. This means you can use the funds on anything that can help grow your business.
4. Simple Application Process
Asset based loans have a fairly high approval rate. The application process is streamlined, so most of the time businesses just need to show that they have a record of turning a profit. One of the most important documents you are going to have to present is your accounts receivable.
5. Better Liquidity
At the end of the day, the reason why most companies opt for asset based loans is because they free up your liquidity. An uncertain cash flow can serve as a real detriment to a business because the owners do not know if there will be enough cash down the road to purchase all essential expenses. In particular, this can benefit companies with seasonal revenues, which means the business makes a lot of money during one part of the year but drastically less the rest.
In recent years, asset based lending has grown substantially in popularity. Before deciding on any type of financing, review all your options and consider the advantages you get with these loans. Chances are good that you stand to benefit, so it is worth looking into.