Asset-based lending is a financing plan that offers a quick cash solution when businesses run into financial trouble. While this arrangement can be helpful, it can also hold a few dangers, particularly if business owners are unfamiliar with what the process involves. Here are a few suggestions for company managers who need to learn about asset-based lending.
1. Become familiar with the practice of asset-based lending.
In effect, asset-based lending allows businesses to use the value of their current assets as collateral on a business loan. Both fixed and liquid assets are eligible for asset-based lending. The term "liquid asset" refers to an asset that frequently changes in quantity or value such as inventory or outstanding customer invoices. On the other hand, a "fixed asset" is an asset that retains its value for some time such as a piece of heavy machinery or a parcel of land.
2. Take advantage of educational resources about asset-based lending.
Once you understand what asset-based lending involves, you'll want to learn more about the process itself. To do this, read a few books on the procedures involved in asset-based lending. You might also attend a conference about asset-based lending and ask a few questions about the potential issues that can arise during the process. If you still have concerns or unanswered questions afterwards, talk to a few representatives at lending institutions.
3. Use your knowledge to choose a lender wisely.
After you learn about the basics of asset-based lending, use what you've learned to select the best lending institution for your business. Be sure to request quotes from several lenders so that you can compare any finance charges or interest fees. You should also ask about the specific fee structure of each loan. Some loan terms may carry undisclosed charges such as fees for early termination or late payments, so be careful to find out all you can about the potential loan before you sign on the dotted line.
It's also wise to ask for references from each lender. You can also inquire about the reputation and the background of each lending institution, as well as the customer service hours and assistance that will be available to you. Make sure that the lender has loan representatives who are familiar with your specific type of business so that they can answer any questions that come up.
Learning about asset-based lending can make it easier to decide if this type of financial loan is a good idea for your business. The more knowledge you gain about asset-based lending, the more comfortable you'll feel if you decide to use it to assist your company.