An asset-based loan is different from a cash flow loan in the sense that the loan is not secured by the amount of cash flow that a business accrues but instead by the company’s assets. This could include real estate, inventory, equipment, accounts receivable (A/R) or other forms of collateral. The loan may be secured by a single asset or a combination of assets. Typically lenders will loan at a 50 to 65 loan to value ratio. This means that if an appraisal value given to a specific asset or combination of assets is $1,000,000.00 a lender would loan anywhere from $500,000.00 (50%) to $650,000.00 (65%) to the borrower.
Who typically receives an asset-based loan?
- Borrowers with no, little or poor credit.
- Borrowers with an income that will not sufficiently cover loan payments. These borrowers may have to rely on the loan itself to pay back the lender until the property is either refinanced, sold, or their income increases.
- Borrowers who can provide little or no down payment on a large commercial transaction, as would otherwise be required, because they are purchasing it under value.
- Borrowers who may have made a deal with the seller to lend them the remaining balance of the purchase price which would not have been covered by the first position mortgage.
Why get an asset-based loan?
On a short term basis, an asset based loan can provide needed recovery time for financial reconstruction. It is a prime financing choice to facilitate maximum cash flow during a period of down time or fiscal changes. With the utilization of an asset based loan, companies can prove they are worthy of long term financing by making payments on time and by improving their current working and financial operating environments.
Asset-based loans are often the catalyst of opportunity. When a door opens for a business conventional financing often takes too long to process leaving the company unable to take advantage. Sometimes company resources cannot handle the cost. In this case an asset based loan provides a supreme short term solution that will allow the company to fully take advantage of business opportunities.
George and Company will Support Your Financial Decisions
True asset based or “equity based” lending is easier to obtain for borrowers who do not conform to typical lending standards. We will work with borrowers who may have little or bad credit, they may also have a low level of income to support the loan payments and may even rely on the loan itself to pay back the lender until the business is either sold, refinanced, or their income resumes. This type of loan will also cover the buyer who may have little or no down payment on a large purchase. George and Company believes in your investment and capacity to buy, sell, and operate a successful venture, this loan option is available for the investment that may be considered to be more risky by the financing institution, but we back your cause and support your investment.
If you have further questions about asset-based loans and financing your business, contact one of the expert advisors at George & Company.