Asset-based lending is a flexible financing option that utilizes business assets to help you qualify for large loan amounts. Like other loans, this option has many pros and some cons for different businesses. Determining if it’s right for your business depends on your operations and the type of assets you have. What companies benefit most from ABL financing?

A Source of Funding for Companies That Have Trouble with Traditional Loan Requirements

ABL funding is an alternative type of financing. That means that it offers different requirements than traditional loans. With most traditional loans, your business needs an exceptional credit score to qualify and solid cash flow. Many small businesses have trouble meeting those requirements.

With an asset-based loan, you don’t have to worry as much about your company’s credit score. When there is collateral backing a loan, lenders are willing to bend the credit rating requirements because the risk is lower.

Capital for Businesses That Need Assistance with Growth

Why invest in a loan in the first place? Reaching your business goals is essential for having a healthy business. You need to continue advancing and growing. The goals for every business are different; some owners want to purchase new equipment and others are looking to get more inventory for sales.

One of the benefits of asset-based lending is that you decide how you want to use the money. Unlike traditional loans, you don’t have to present a complete business plan accounting for how you’re going to use all of the funds. Those decisions are best left to you as a business owner who knows what your company needs the most.

Available Collateral

To use ABL financing, you need collateral. This can include equipment, inventory and real estate. Invoices can also act as collateral for factoring.

Short-Term Financing for Many Needs

It’s important to keep in mind that ABL financing is primarily used for short-term needs. This type of loan has a higher interest rate than an SBA loan or conventional term loan. That’s one of the tradeoffs for having easier qualification requirements and faster approval.

When deciding whether ABL funding is right for your business, think about how you’re going to pay back the loan as quickly as possible. Using asset-based lending to buy inventory is smart because you can make sales immediately and pay off the loan in a short time. Many real estate businesses use asset-based lending to purchase property, but it’s because they know they’re going to resell the real estate right away and profit from it.