Asset based financing can defined as the provision of structured working capital and loans secured against company assets, such as land and buildings, plant and machinery, vehicles, stock and debtors.
Asset based financing providers can offer a structured funding package which is secured against the business assets. This means that the lender has increased security and allows them to offer the greatest range of finance available.
Asset based financing is available to all businesses in all sectors and industries. It is often used by new and start-up businesses as well as those looking to refinance existing loans. It is also often popular with companies who are looking to fund mergers, acquisitions and management buyouts.
The solution to this is that a lender will provide the company with the finance to continue trading. Once the company is in a position to pay back the loan, they will do, including any additional interest charged for the loan.
One of the most popular examples of asset-based financing is known as 'purchase order financing.' This is usually employed by companies who have reached their credit limits with their suppliers and reached their lending capacity with traditional banks. Businesses who find themselves in this position are often unable to operate at full capacity, meaning that they can not fulfill orders and so can not supply their products or services to their customers.
By using the value of accounts receivable in order to guarantee the loan, in other words, invoices that are due to be paid to the company, the business can often get a loan of around 75% of the face value of recent invoices.
By utilizing Asset Based Financing, the company still retains the assets, but if they default on the loan, the lender can seize the assets. Asset based finance can be very useful for companies that perhaps do not have perfect credit, or have not been trading long enough for a more traditional business loan.
In order to get the most from asset-based financing, it is vital that you seek the advice of professionals who will be able to assess your situation in a considered and knowledgeable manner. From here, they will be able to advise you on the most appropriate course of action.
If you're a new start up company and have more orders than products due to financial issues, or if you're currently having cash flow problems, why not seek Asset Based Financing Advice, and see if this method of raising company finance is right for you?