Asset based lending (ABL) is great for companies that need just a short term loan to cover unexpected finances. Since ABLs are easier to obtain than traditional lending options and can be modified or customized without any additional underwriting, many mid-size and large corporations take advantage of this type of loan for different reasons.
Who Can Benefit from Short Term Financing
One example of companies that can benefit from an ABL are those that are experiencing rapid growth. The loan can cover the sudden costs that have arisen. These companies can use this type of financing to cover the expenses needed to expand, whether that means acquiring more equipment, real estate or staff. With an ABL’s flexibility, companies need not specify precisely what the funds are for as long as they are used for business purposes.
The second example of companies that can take advantage of this type of lending are those companies whose income seasonally fluctuates. Examples of these companies are retail businesses, who can readily pledge their merchandise as collateral, purchase more merchandise and make a profit. Other companies can include manufacturers, who could then invest in more machinery to increase their output.
The third example of companies that can benefit from asset based lending are those companies who are temporarily struggling. These companies can take advantage of the immediately available funds to bail themselves out of a temporary slump.
How ABL Works
Many financial institutions now offer an asset based loan option to companies. Lending companies usually require that companies borrow a prescribed minimum and that only 75%-855 of their assets can be levied. In addition, only 50% of the collateral can be in equipment and inventory. Unlike other traditional loans lines of credit, an ABL is easier to obtain as long a company has viable goods that are not under lien to any other lender.
Not only is the loan easier to obtain, but the repayment rate is different. First and foremost, the borrower only has to repay the portion of the loan it uses. Secondly, the interest and principal are paid differently. The principal often gets recycled into the lending circle, making the asset based loan a sort of revolving credit. It is also easier to increase an asset based loan as assets from the company increase.
An asset based loan is among one of the principal ways companies can maintain their business acumen. Companies have many options to cover anticipated shortfalls and can always contact a qualified lender to explore all their options and should consider and ABL for short term finance.