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Asset-Based Lending: What’s the Hype All About

May 19, 2022/in Blog /by Bruce Kent

No matter what you’re up to in the market – whether you’re selling necessities, luxury items, or some esteemed service, you can’t start operating a business without loans and money. Ever since the beginning of time, people have required resources to make things happen; in the case where people themselves did not possess those resources, they asked for those from the people around them.

Similarly, the modern-day banking and finance structure offers the luxury of lending money and loans to facilitate business ideas, commercial needs, and much more. Anyone who has taken up any kind of loan knows that this doesn’t come so easily – there are several requirements you have to fulfill before any commercial lending services will trust you with their money.

Before we dive into the specifications of the requirements, the advantages, and other forms of the lending process, let’s take a look at some of the most common types of lending services that you can avail yourself.

  • You can opt for a commercial real estate loan
  • You can opt for hard money raw land loans.
  • You can avail an asset-based loan for your commercial needs.

One of the most talked-about and opted-for loans remains the asset-based loan most commercial entities choose. You’ve come to the right place if you want to learn more about asset-based loans and why they’re so popular. Let’s dive into the specifics of asset-based loans.

Let’s begin!

What Is Asset-Based Lending?

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While most commercial lending companies issue loans in the most traditional forms, including assessing a company on their stability and ability to return the loans. Some companies can be eligible for other types of loans, such as asset-based lending. These companies have enough assets that they can bear to take loans, to help develop their companies.

If a business has substantial assets, an asset-based lending program might be the best fit. In this financing type, you can offer your company’s assets as collateral, including accounts receivables, brand names, and even intellectual property.

Not only do lending firms allow asset-based loans to companies that may not have significant growth at the moment, but it also gives them the liberty to make future investment and repayment decisions based on their performance. This is a luxury other types of loans might not be able to offer.

Understanding the Workings of Asset Based Lending

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While calculations for a cash flow commercial loan are fairly easy to understand, most companies would involve your funded debt and divide it by the earnings before interest, taxes, depreciation, and more.

However, the case with asset-based lending is majorly different from the traditional form of lending money from a lending service. In asset-based lending (ABL), a lender is supposed to help a firm assess its assets and their value and then offer these as collateral to secure a sizeable amount for its commercial operations.

Advantages of Asset Based Lending

There are several advantages to the asset-based loan types for both lenders and borrowers. Let’s take a look at both sides of the advantages to see why asset-based lending is considered a big deal.

Benefits for the Borrower

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Easier & Convenient

When you reach out to commercial lending services for an asset-based loan, you are preparing yourself for the advantage that your loan may be processed quicker than other forms of commercial hard money loans. Private money lenders are quick to pay off money to borrowers that are offering valued equipment or other assets as collateral. For a great commercial lending experience, it’s always better to opt for asset-based lending.

Lesser Covenants

Lending companies often expect borrowers to sign off on covenants. These undertakings are equally stressful for lenders and borrowers. With asset-based lending procedures, the collateral assets are covenant enough for lenders; they don’t have to worry too much about companies defaulting on loans.

Lower Interest Rates

Lending money isn’t always about taking the money for a cause; it’s also about returning the said money. To make the repayments easier, a lower interest rate is what all investors are looking for. Commercial lending processes offer low interest rates to borrowers, making it extremely easy for them to pay off loans in due time.

Benefits for the Lender

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Less Risky

What do you think is a private lender’s biggest worry? They are afraid that the borrower will default, run away, and their money will go to waste. With asset-based lending, the lenders are more relaxed as they are getting the security of the borrower’s assets as collateral against the loan they are issuing.

Liquidation is Easy

As opposed to other forms of traditional lending services, it’s easier to liquidate the borrower’s assets in situations where they cannot pay off the loan. Since the loan is against the asset valuation, there is hardly any loss for the lender, and they get to recover most of their money through the liquidation of the asset in collateral.

ABL for Multiple Capital Purposes

Asset-based lending isn’t just about running a business or buying a commercial property; sometimes, it’s more than all of this. Some of the purposes that ABL finances are as follows:

  • Acquisition of a new company
  • Monetary help for walking into a joint venture.
  • Helps small-scale companies pay off their dividends.

Asset-based lending is what every company should be opting for, and who can do it better than us? That’s right; Commercial Private Equity will undoubtedly assist you. Our services include offering a variety of hard money loans, including asset-based lending, bridge, construction, commercial hard money, raw land, and workout loans.

In addition to the loans, we also provide commercial hard money loan counseling to help you grasp the best practices for borrowing and repaying loans. Contact us today for more details.

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https://commercialprivateequity.com/wp-content/uploads/Antique-coins-falling-on-a-surface-from-above.jpg 1280 1280 Bruce Kent https://commercialprivateequity.com/wp-content/uploads/Commercial-Private-Equity-Logo-2.png Bruce Kent2022-05-19 03:46:332022-05-19 03:53:41Asset-Based Lending: What’s the Hype All About

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