Smart business owners and managers are always looking for ways to improve the bottom line, so they often scour financial publications and websites. With that in mind, many companies in the financial industries include expert online advice. These can include “My thoughts” columns or sections that often highlight economic solutions. A good example is asset based lending, an option that lets businesses benefit from the equity in their equipment.
The Principle Behind Asset Lending
A basic definition of asset based lending is the practice of loaning money that is secured by the borrower’s existing assets. In the business world assets may consist of balance sheet items like accounts receivables or inventory. However, it is very common for lenders to provide lines of credit or cash based on the equity in borrowers’ equipment. Financial institutions consider this a fairly low-risk option because it is simple for them to seize collateral if borrowers’ default.
Loans Can Free Up Equipment Equity
Equipment based loans are especially useful to businesses because they allow companies to make use of unused equity. It is common for businesses to own equipment worth thousands or even millions of dollars. When they need cash to expand, meet payroll, renovate or even pay bills, financial specialists will make loans against all that untapped value. Lenders will also structure loans to meet their clients’ unique needs.
Why Asset Lending Is Especially Attractive to Borrowers
Although borrowing money against assets is possible for any business, it is more common with some than others. For example, the loans make sense for companies which have a great deal of capital tied up in equipment. Asset lending also offers solutions for those that need more working capital or are having cash flow problems. It is an excellent choice when companies are searching for structured debt that offers skip payments. Borrowers who want low-interest loans also use assets as collateral.
The equipment that businesses own can become hidden treasure when used as collateral for asset-based loans. Lenders are willing to loan money based on equipment equity because they can seize the property if borrowers’ default. Asset lending offers businesses quick cash that can be used for any need.