How Businesses Take on Debt for Business Growth 

The lure of business growth is so powerful for small businesses that a great many risky propositions are sometimes considered as a means of achieving that business growth. While asset-based loans are not really a risk in the sense that they could cause your company to fail, you may have to leverage future revenues of either receivables or inventory in order to gain access to needed ready cash at the moment. Alternative lenders who deal with asset-based loans will generally supply funds at a rate which is between 70% and 80% of your eligible receivables, or at about 50% of finished goods inventory.

Which Companies are Eligible

One of the advantages of arranging for an asset-based loan is that your company can be a relatively new business without much history, and could still be considered eligible. In most cases, it’s fairly easy to secure an asset-based loan, provided your small business deals with commonly sold inventory, has good methods of reporting, has accurate and appealing financial statements, and has a customer base which, for the most part pays invoices promptly.

Advantages of Asset-based Loans

Apart from the fact that they’re much easier to secure than a conventional loan, there are some other appealing factors related to asset-based loans. These types of loans are very well suited for service companies, distributors, and manufacturers whose cash flow is often interrupted, and which require an infusion of capital to fill the gaps. Asset-based loans can be used for many different purposes too, including financing acquisitions for growth, purchasing a large amount of inventory, or simply as a much-needed infusion of cash to manage day-to-day operations during a seasonal downturn.

Disadvantages

If there’s a disadvantage to securing an asset-based loan, it’s that they generally cost more than conventional loans do, but if you have a small business which can’t secure any other kind of funding source, this can be overlooked rather easily. When you are selling future receivables to an asset-based loan company, you can also expect that they will sift through invoices of your customers, and specifically pick out those who have a reputation for paying promptly, and those who have strong credit ratings.

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