Recovering from a volatile market can leave your successful small business with plenty of prospects and accounts receivable but little cash on hand. Traditionally your business could only be funded through loans that could take months to approve or through selling a share of your business to investors. Today there are more appealing options when your business needs a cash infusion. Read on to learn more about one of these, asset-based lending.

What Is Asset-Based Lending?

Asset-based loans are small business loans that use your existing assets as collateral. Banks and lending institutions which work with these type of loans are looking primarily at your inventory and accounts receivable as collateral, but they may also secure your loan with your equipment. The benefit of this type of loan is that the application process doesn’t take nearly as long as a traditional loan. A secondary benefit when securing your loan with inventory or accounts receivable is that you know your business cannot borrow more than you have the potential to earn or receive in the immediate future. 

Who Is Asset-Based Lending For?

There are several situations where asset-based lending may be the best solution for your business. First is if you have a lot of open accounts receivable but are short on cash for payroll. The easy application and short-term nature of the loan is the perfect solution to bridge you through until you start getting paid. 

Besides being strapped for cash in the short term, your business may have an opportunity you don’t want to pass up. If there’s a short window where a piece of equipment you need to expand your capabilities is available, or the perfect corner property suddenly comes up for sale, an asset-based loan can provide you with the funds, quickly and easily, to grab those chances.

How Does It Work?

Both banks and private lending institutions offer this type of loan, and it is a loan. Unlike invoice factoring, you will have to pay the money back, with interest, but you’ll also still own your assets.

Your balance sheet is important to your application, showing that you have the assets but also that your business is successful and you’ll be able to pay the loan. Your business credit will also affect the interest rate you’re offered. These loans are quick to apply for and also have a short term, lasting from a year to five years.

If you need an asset-based loan you should check in with your regular financial institution. Working with a bank that knows your history can help you get the most favorable rates.