Are Asset Based Loans For Your Company?

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When having your own business, it is a known rule that you have to spend money to make money.  Well, what are you suppose to do if you don’t quite have the money to pay for certain things like purchase orders or research and development to help your company continue to grow?  Well, one great option that you and your company could use is going to be an asset based loan.

An asset based loan is a loan provided by a financial company rather than a bank like in the case with most loans.  These loans are going to be backed by a company’s account receivables and the company’s assets.  These loans are great for businesses that are growing and need extra capital to invest into themselves.  There is a vast range of loans available from $200,000 to even $15 million and more.  These loans are great for major finance companies that have a lot of extra capital and are looking to capitalize on their money.  One great thing about these loans is that you only pay interest on the money you have taken from the company so if you take less, there will be less interest.

The loan works by basing the amount of money a company would be eligible for off of a percentage of the company’s assets value.  If a company does not have much money in their inventory and in their assets, they are less likely to get a maximum value loan. 

Typically, companies that are the top selections for asset based loans are business to business companies that usually operate in the manufacturing industry and have sales from $10 million to $250 million and have a good track record of paying back their debts. 

Asset based loans can be used for anything the company wants to use them for and are a great way for companies to continue to grow even when they do not have a tremendous amount of capital. 

Non-Traditional Funding Options

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 Ideally small businesses would immediately have the funding they desire, and there wouldn’t be any financial issues from helping them succeed.  Unfortunately that is rarely the case.  At times when traditional banking loans fail, what are the other options available for funding?

Factoring

 

This option is great for companies that are looking for a fast transaction that will leave them with cash in their hands quickly.  The premise behind factoring consists of the company selling their accounts receivable at a discount, giving the company quick cash without having to wait the normal allotted time that it takes to gain access to the funds.  In this type of funding the financer is much more interested in the company’s accounts receivable than their credit history.  The great thing about this type of financing is that the financer would assume the risk of the account receivable.  The obvious con of factoring would be the discount that is being given to the financer, and the fees that would entail.

Merchant Cash Advance

Cash advances are proving to be a viable option for many businesses.  These are also great for companies who are in need for cash in a timely manner.  The cash is given in a lump sum, and the borrower will promise the lender a share of their future credit card sales.  This is also a great option for companies that do not have the best credit history.  The appealing thing about cash advances is that they do not have the interest rates or fixed payments that most financing options have.  With that being said, the percentage of the credit card receivables that is taken is usually hefty.

Being turned away from a traditional funding source does not mean game over.  These are just a few of the non-traditional financing options that are available for small businesses. 

 

How Do Merchant Cash Advance work?

What To Think About Before Opting For A Cash Advance

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As many who have ever jumped into the small business world realize, getting financing is not always the easiest endeavor.  Many want to skip the small steps and just get cash into their hands- FAST. 

Although cash advances aren’t always risky, there are a few things that you should take into consideration before you ride down that road.

Research

Ask yourself, ‘Have I done enough research on the advance?’.  Make sure that you thoroughly research the cash provider before you make anything official.  Do not be fooled by the aggressive marketing campaigns that many merchant cash advance providers have.

Interest

Cash advances can get expensive as interest rates accumulate and add up.  It’s very important to anticipate these expenses before you lock yourself into a contract.  Take the time to read the fine print, and to understand both the rates and the speed at which they rise. 

Business cycle

It’s also important to take into your consideration how rapid your business cycle is.  The short repayment cycles work much better with businesses that have rapid business cycles. 

Last option

When a company takes out a cash advance to pay other loans that is a sign of trouble, and usually the beginning of a very dangerous cycle.  Cash advances should only be used as a one-time thing and not something your company falls back on each time it senses trouble. 

Essentially, cash advances are not necessarily a horrible thing and can be very helpful if your company is backed against the wall.  Although cash advances are risky, for some businesses they are an only option, a viable option.  As long as the necessary research is done before the contract is signed, and the right questions are asked, a cash advance may be a smart financial move.

What are Asset Based Loans?

Tips for Growing Your Business through Debt

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When you are operating your own business, no words can send shivers down your spine than the word debt.  Debt can be the downfall of any business and can become extremely dangerous if not handled properly.  Since your business needs to grow, sometimes it is inevitable to avoid debt but if you use the debt right, it will not cause problems for your company.  Here are a few ways to use debt properly to help your company continue to thrive.

Microloans

One type of debt that is available to many first time business owners is going to be a microloan.  These microloans are great to help smaller companies that are in a pinch.  With a wide range of values of the loans, these microloans are great for getting a company trying to get a small loan without having to cost them an arm and a leg in interest.  These microloans typically come at a smaller interest rate than a company credit card would.  These loans are great for small companies that need a little bit of money to fulfill orders and other similar situations.

Asset Based Loans

Another type of debt that can help your company grow is going to be asset based loans.  These loans usually come from finance companies rather than through banks and the loan amount is based on the value of the company’s assets.  These loans are great for companies that have seen a boost in sales and are growing faster than they can pay to keep up.  These loans help companies keep up with purchase orders and are good for companies with a high inventory turnover.

Small Business Administration backed loan

The last type of debt that can help a company is a Small Business Administration backed loan.  These loans are great for small businesses but have strict stipulations that need to be followed by the borrower.  These loans are great for lenders because if the borrower is unable to pay, they can turn to our federal government for repayment.

Debt is sometimes necessary to help a company grow so don’t be afraid of it.