Asset-based financing can be more beneficial than any traditional lending system. It may not be the best fit for every business, it is better to include it as part of your options when selecting the best financing product for your business.
These are some reasons to consider asset-based financing.
1. Lower costs
Asset-based loans are secured loans as they are relatively cheaper than traditional loans which focus on a company’s financial history. If a company’s credit history is a determining factor it is an unsecured loan. The borrower will, therefore, be charged at a higher interest rate. This is due to the fact that the bank may be assuming more risk when they make an unsecured loan.
2. Less paperwork
A traditional business loan might require you to document the financial history of your company’s operations. In other words, borrowing against the value of your inventory can be an easier way for a startup to get financing compared to trying to get a traditional loan.
3. Fewer restrictions than traditional loans
Traditional loans have lots of restrictions on how the money from the loan is to be spent, this is not the case in asset-based financing. For instance, a bank may ask why you need a conventional loan and how you want to make repayment. If you opt for a term-loan whatever you tell the bank you want to use it for its what you must use it for.
4. Flexible repayment terms
Asset-based loans don’t always require the entire loan amount to be paid off in accordance with a fixed timetable. Term loan repayments must be paid monthly. Asset-based loans have more flexible repayment terms, allowing businesses to pay off the debt at a time that won’t hamper on their cash flow.
5. Streamlined balance sheets
The balance due appears on your balance sheet when you take up a traditional loan. Most asset-based financings are not get recorded that way. All that is needed is to note how you managed this financial transaction in a footnote on the financial statements.