Asset Based Lending

Written by Patricia Skinner
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For a variety of reasons, business owners are turning to alternative financing solutions instead of taking out regular loans from the bank. If you need working capital in a hurry, asset based lending is just one of the options open to you. A lot of the time businesses run into liquidity problems because all of their capital is tied up in inventory. If the situation isn't handled just right, this can tip an otherwise healthy business into bankruptcy.

Often though, instead of solving a pressing cash flow problem, asset based lending backed by such securities as inventory, real estate, machinery and equipment and accounts receivable can free up capital for a number of positive business moves. This may include business expansion, strategic acquisitions, seasonal needs, privatization, consolidation, turnaround financing, roll ups and more. This type of loan can also be used for refinancing if necessary.

Increase in Asset Based Lending

To keep pace with the increased speed of business transactions requiring short term loans, asset based lending has increased dramatically during the last decade. This has prompted many banks and lending institutions to open up special departments specializing in asset based lending. Although it's not difficult to find a source of asset based loans, it's important to look around for the best terms you can find.

Some of the factors that prompt the requirement of asset based lending are worldwide economic cycles. It's not always possible for a business to accurately predict income for any given quarter. Global competition and the highly volatile price of commodities are two other factors that may cause a company's financial situation to destabilize in the short term.

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