When you are looking to start a business, debt can be a very common, and very scary, thing to have. Many small business owners need to finance the debt that comes from paying employees, upping inventory, office supplies and more. The only problem is that, as a new business owner, you probably don’t have an upstanding line of credit quite yet.
Without established, secure credit, banks and other lenders are often weary of lending to that person or company. This is where using this type of borrowing can come in handy. Financing new business debt by using asset based lending, or ABL, is a smart move. It takes a valuable asset (collateral) that you have, such as inventory or property, and lends against it.
Providing collateral shows the lender that you are more than serious about your potential venture and about keeping your account and loan current. When given an asset-based loan and giving some sort of asset as security, you are giving the lender permission to seize whatever asset was given if you were ever to go into default, or, in other words, not make your payments.
There are many benefits to using asset based lending as a tool for debt financing, such as a lower than normal interest rate. When a loan is tied to a company’s assets, banks feel more comfortable in giving out the loan to them because they know that if they were to go under, the bank would still be able to recoup the property or asset and they would not have to worry about losing money on the loan.
You’ve heard the saying “it takes money to make money,” right? Another benefit to employing this type of borrowing to help your company is that it increases your liquidity quickly. With fast access to cash for your startup, you are able to take that money and reinvest it into your company to generate more revenue for you and higher profits and bottom lines.
Once you have utilized ABL, you are able to move on to other types of financing as you build credit with on time payments and higher profit margins. With this experience, lenders are able to see that you have what it takes to get secured loans without being backed by collateral. Asset based lending is an excellent tool to step up onto the next level of playing fields.
Using asset based lending allows you to finance your debt painlessly and fast. If this is something that interests you as a potential investor, contact your lender today to learn more information regarding borrowing money for your business.