Asset-based loans are a kind of financing for small businesses that involve accessing a company’s assets, such as equipment or inventory.
Asset-based loans are generally less expensive than other types of business loan options because there is no appraisal required, and you can use them to finance both short-term and long-term needs.
When to get a business loan
A business has many financial needs, but not all lending options are created equal. Different kinds of financing may be the most appropriate solution for different situations.
Examples of when you might use a business loan include:
1. When it’s time to grow or expand
Jobs are coming in, the pipeline is full, and the business is looking for ways to scale up. Seeing new opportunities on the horizon is a great time for an asset-based loan.
2. If plans change unexpectedly
If business owners have experienced rapid growth or have had unexpected expenses that arise from a change in the business plan, they may find it necessary to seek other financing options.
Ways an asset-based loan can help small businesses
Here are ways that you can use an asset-based loan to help a small business:
1. Temporary Staffing
When a business owner needs temporary help, you can use an asset-based loan to finance the payroll for a short time. This is usually a short-term loan that you can repay through payroll deductions.
2. Purchasing Equipment
When it is time to upgrade equipment, you can use an asset-based loan for financing the purchase of new machines or vehicles. Another benefit of this type of loan is that no appraisal is required, reducing the time it takes to get a deal done.
3. Paying Operating Expenses
If cash flow is tight and there is not enough money to pay the salaries and expenses of employees, an asset-based loan can help manage these costs. These loans are usually short-term and enable business owners to make payments as they come due.
4. Expanding Product or Service Offering
When expanding services or beginning new programs, asset-based loans can help small businesses secure the funds they need to grow their business. These loans are usually long-term, with fixed repayment options.
5. Inventory or Stock Financing
When a business has a large need for inventory or stock, an asset-based loan can provide the capital to purchase these assets. Also, a business can reimburse the loan through inventory sales.
6. Business Opportunities
For small business owners seeking new opportunities, an asset-based loan can provide the capital needed to take advantage of a growing market. When business owners see an opportunity, they can use an asset-based loan to meet this need.
7. Seasonal Expenses
For small businesses that experience large increases in demand during certain times of the year, an asset-based loan can help cover the extra costs. Examples of this include business that experience a large increase in demand for products or services during the holidays. T
8. Bridging Finance
If a business owner has a long-term project that they need to complete but needs a short-term loan to bridge the gap until they can secure traditional financing, an asset-based loan can provide this service.
9. Temporary Cash-flow issues
When a business experiences periods of low cash flow, an asset-based loan can provide the working capital needed to pay bills. These loans are usually short-term, allowing for rapid repayment if cash flow improves.
10. Short Term Financing
When there is a need to access funds quickly, an asset-based loan is often the best option. These loans are often short-term, allowing for rapid repayment.
11. Business Acquisition
When business owners need the capital to purchase an existing business, they may use an asset-based loan. This type of financing is attractive because it does not require all-cash upfront and enables the new owner to take over ownership quickly.