Finance

What Collateral is Used for an Asset Based Loan

If you have credit issues, a new, unproven business, or simply don’t want the restrictions that come with traditional lending sources, you may be in the market for an alternative lending source. Taking out a loan based on the existing assets of your company is a great solution to cash flow issues and handling the funding needed to help your business grow and thrive. There are several different options for collateral when applying for asset based loans.

Equipment and Inventory

Businesses that have high-value equipment or who keep a large stock of inventory on hand have a fabulous source of collateral for an asset based loan. Borrowing against items that you already own and that will be a source of income is a smart option, as long as you are careful not to fall into a trap of over-borrowing on your profits.

Real Estate

Companies that own real estate have a great resource for borrowing against their assets. Taking out a loan against a piece of property, warehouse, factory, or retail location may provide a larger potential for borrowing than taking out a loan on equipment or inventory. Take care to consider the valuation of your property and the amount of equity you have to borrow against to ensure you don’t owe more than the property is worth.

Accounts Receivable 

Existing purchase orders and outstanding invoices might seem like they are only future income, but they may be options for collateral as well. When borrowing against incoming profits, keep in mind that the profit of the lender is based on a percentage of the value. In most cases, you will walk away with a portion of the value while the lender keeps the remainder as their profit on the loan.

The amount of money you can borrow in an asset based loan will be based on the value of your collateral. For many business owners, this helps to free up the cash they need to get through tough times or to grow their business to its full potential without relying on standard business loans.

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