What is Asset Based Lending? An Entrepreneur's Guide

Imagine dishing out a growing number of your favorite loaded fries -- hello cheese and garlic mayo -- from your own food truck. Or whipping up countless more snazzy hairstyles for prom, weddings, and everything in between.

Imagine expanding your business operations to a whole new level.

It isn't that hard to imagine, really. Not when research shows that more than 500,000 people in the United States become entrepreneurs each month and ultimately seek to grow their ventures.

But what if you're strapped for cash? In this situation, you may benefit from asset-based lending.

What is asset-based lending exactly? Here's a rundown on everything you need to know about this small business financing option.

Let's jump right in!

What Is Asset-Based Lending?

The purpose of asset-based lending is to give you access to funds as part of an agreement secured by business assets, or collateral.

Collateral may include inventory or accounts receivable. For instance, you can put up your real estate or your equipment as collateral. This helps reduce risk for the lender, as in the case of a default on your loan, they can take possession of your asset. 

An asset-based lender will advance money based on a percentage of your assets' value that you have agreed upon. 

Best Candidates for Asset-Based Lending

The best candidates for asset-based lending are small businesses and mid-size companies that have strong financial statements.

Your financial information needs to be accurate and detailed. Only then will your lender view your business as a viable venture long term. The more solid you appear on paper financially, the more likely you are to get a loan.

To secure this type of loan, you should also have a good reporting system in place. In addition, be sure that you have inventory that you commonly sell. Having consistently paying customers is another plus.  

Pros and Cons of Asset-Based Lending

Asset-based lending can help you if your cash flow changes with industry cycles and seasons. You may be in this boat if you are a service company, distributor, or manufacturer.

An asset-based loan can also help with financing acquisitions.  

The downside of these loans, however, is that they tend to be more costly when compared with traditional loans. 

Still, if you are in a pinch and need help with getting over financial humps, these loans can be lifesavers. For instance, you may need financing to make a huge equipment purchase you didn't expect.

How We Can Help

If you're wondering "What is asset-based lending," we at Clarendon Funding have the answers you need. 

We are proud to be your top source of business funding, as we understand the challenges involved with making a business successful.

In addition to offering quality financing, we provide exceptional support to each of our clients. This means you'll receive all of the help you need at each stage of the process: application, funding, and post-funding.

Get in touch with us today to fund your business and achieve entrepreneurial growth like never before.