by Justin Hatch, VP Commercial Finance
Choosing to expand your business or take steps to make it more stable and secure is a major decision. Except for the most cash-rich companies, such decisions frequently require some form of loan or financing to turn thoughtfully considered plans into reality. There are a wide variety of options out there for accessing additional funding, whether it comes from a trusted financial institution or a variety of other sources. As your consider options for securing the money your business needs to grow and prosper, keep asset-based lending in mind.
What is asset-based lending?
Asset-based lending is a form of secured loan that can draw on a potentially wide variety of business assets to ensure the lender can recoup part of the money provided in a worst-case scenario. Perhaps the most common form of asset-based lending, and one that nearly everyone will be familiar with, is a mortgage. A home or property owner puts that same property up as collateral in exchange for the loan that helps him or her pay for the real estate up front. This is an especially easy way to understand the underlying concept of asset-based lending, although it doesn't touch on an especially important part of the process: the flexibility inherent in many business lending situations.
What makes asset-based lending effective
One of the most notable attributes of asset-based lending is the range of assets that can potentially be used to secure the loan. While many other forms of financing and lending rely on a specific asset, such as accounts receivable financing focusing on unpaid invoices, or an organization's cash flow and balance sheet near exclusively, that's not the case for asset-based lending. A variety of different holdings may prove suitable for the task, including but not necessarily limited to inventory, certain types of equipment and accounts receivable. This allows companies that have a strong portfolio of physical assets and A/R invoices to seek reliable funding, even if they aren't quite where they want to be with other financial indicators.
Asset-based lending is especially useful for emergency situations, as the U.S. Small Business Administration pointed out. While businesses that plan on securing a loan for a specific purpose have the luxury of organizing operations and presenting as attractive of a profile as possible to potential lenders, companies attempting to address an unpredictable emergency don't have that luxury. For organizations that are highly specialized, have major shifts in terms of seasonal activity or are otherwise sensitive to various conditions in their industry and the economy as a whole, it's not always possible to offer the best picture of operations - especially when unforeseeable circumstances strike. In these cases, asset-based lending is a straightforward process that considers a variety of holdings and offers options that might not otherwise be possible.
That's not to say asset-based lending is only effective in emergencies, of course. Plenty of enterprises across the modern business world also use it to finance established plans for growth, diversification and increased stability. As long as the qualification and approval processes can be successfully completed and the money goes toward a legitimate business purpose, there are few limits on how asset-based lending can be put to use. And, because this form of lending is based on an existing asset, the approval process can be less complicated than other options.
Why TAB Bank is a great partner for asset-based lending
Many financial institutions offer asset-based lending, but not all of them will emphasize the relationship between the two partners in an agreement as we do at TAB Bank. With a dedicated relationship manager involved in every single account, we make sure to pay close attention to your needs and prioritize regular communication. We're also proud to offer flexible, scalable financing and minimal financial covenants, which helps make your loan that much more useful, understandable and beneficial. Want to learn more about how TAB Bank and asset-based lending can help your business? Get in touch with us today.