The lender’s interest is secured by the assets of the borrower in all asset-based loans (ABLs), which also determines how large a loan a company can access. But many of the asset-based lenders want a company with a stable balance sheet with strong assets.
Who Uses Asset-Based Loans?
Many companies have to cope with financial struggles during economic crises. Unsecured loans have therefore become hard to come by because many financial institutions aren’t willing to extend these loans and take on the risk of not being repaid. Numerous companies have decided to use their assets as collateral for lenders in this case, resorting to asset-based loan financing. These loans are usually advisable whenever a company needs working capital to keep all its normal business activities running. The company opts to use its own assets to get financial assistance from lenders. The company’s assets are used as collateral.
What Determines How Much a Company Gets?
Not all companies can be given loans of the same size. Sometimes the amount that a company applies for may not be given by the lender due to certain rules that guide the lending process. A company is generally allowed to borrow between 70% and 90% of the value of the company’s account receivables. A company can qualify for a loan that’s equal to 50% of the value of the inventory when inventory is used as collateral.
What Is the Cost?
The cost of these loans depends on the value of the collateral that’s used and the amount of the loan given, as well as the general risk involved.
What’s the Due Diligence Process for the Loan?
A lender must conduct research about the company’s financial status and the type of collateral being used, as well as go through the company’s financial books, before it will agree to provide a loan to any given company.
What Are the Benefits of an ABL?
The ABLs are very beneficial to a company in several ways.
They Can Be Obtained Quickly
Unlike other conventional loans that require a lot of documentation, ABLs are easy to obtain without a lot of hassle for as long as the company meets the lending criteria.
They Provide Financial Stability
These loans can cushion a company that’s going through hard economic times and quickly restore it to a stable financial state. They’re given within a short period of time so as to increase the company’s cash flow.
They’re Easier to Get Than Other Types of Loans
Realistically, it’s easier to qualify for an ABL loan compared to other lines of credit because very few processes are involved. But the financial position of the company and the value of the collateral used must be considered.
Their Restrictions Are More Flexible
Asset-based loans are very flexible when it comes to how the company spends the money. An ABL doesn’t come with strings attached like other loan forms.
