Asset Based Lending Facilitates Small Business Growth

Is Asset Based Lending for you? If you own a small business that needs access to working capital and you:

• Have been unable to obtain financing from a traditional bank;
• Have little or no credit history;
• Need financing more quickly than a traditional bank can provide;
• Have exceeded the credit limit set by your bank;
• Have customers who are paying beyond terms.

Then asset based lending is a great option for you. Traditional banks are no longer the only choice for business owners because asset based lenders offer flexible, customized lending packages to qualifying small businesses.

The Basics

Typically, asset based lenders (or factors) purchase a company's accounts receivables at a discount, providing the business owner with the financing they need. The assets referred to in the term 'asset based lending' could be any asset, but more commonly the term refers to those assets not typically utilized in traditional loans. This could be commercial accounts receivables, inventory, purchase orders, or any combination of these and other like assets. Most often, funds are received in the form of a line of credit collateralized by these assets, with the total being equal to a percentage of the assets being collateralized. The interest rates are generally higher because the lender is assuming a higher level of risk than a traditional bank, but interest is only paid on funds drawn. For many businesses, the increase in interest rate is worth it for quick and flexible availability of funds. These types of loans are becoming quite common and are available from various sources, including Triton Financial Solutions.

How It Helps

Asset based lending can help a small business grow in many ways. Unfortunately, a business can be hindered before ever getting started because it cannot afford growth opportunities when they occur. For example, if a new business were to get a larger order than is typical, one of two things can happen. It could fill the order, reap the profits, reinvest these profits into the business, and continue to take larger and larger orders. The opposite of this scenario would be that they have to turn down the order due to the lack of funds needed to order the necessary inventory, materials, etc. In this scenario, the vicious cycle continues and growth is continually stunted. However, with an asset based loan, the business owner would have access to funds from the line of credit and easily be able to fill the order and thus live out the first scenario.

Another possibility is that a small business is presented with the opportunity to buy out another existing business and absorb it into itself, thus growing by taking in the other business's customers. Without the available cash flow, this may not be possible. However, the ability to draw on an asset based line of credit could allow for the buyout and facilitate the growth of the business.

Other Uses

Of course, these funds can be used for many other reasons. They are frequently used as an advance on receivables or sales (collateralized by commercial receivables and/or inventory) to handle day-to-day finances. They can also bridge any cash flow gaps due to seasonal market changes or a period of high growth with less cash reserves on hand. In today's market, traditional loans are simply not an option for many small business owners for various reasons. Asset based lending offers a practical alternative to help support growth when needed.