Reasons Why Businesses Choose Asset-based Loans

October 7, 2020
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Paul Petersen
Posted in Business
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The businesses that are growing faster might face a problem related to financing their expansion plans. In this case, asset-based financing may turn up as a feasible and a potential way to help take your business to newer heights of success.

How does asset-based financing work?

If you have a retail business and you need financing to expand then instead of taking a loan from a traditional institution you would rather opt for a loan based on the inventory that you have.

Many businesses also operate as wholesalers to small firms and they have regular unpaid invoices that can be used as loan collateral and they enter into a contract with an intermediary called the factor who buys the invoices at a discounted price in exchange for immediate cash.

Why consider asset-based financing?

There is a wide range of benefits that come with asset-based financing. These benefits include a few restrictions, cost savings, and less paperwork. However, you should also know that this system is not the best for every business. The costs are potentially low and moreover, these are highly secured loans. That’s why they are cheaper than traditional loans.

There’s less paperwork to go through if you take an asset based loan from a modernized financing institution. Asset-based financing doesn’t need documentation. In short, borrowing against your inventory is easy for a new business instead of going for traditional methods.

Compared to traditional loan methods, asset based loans have very few restrictions. For example, a bank would probably ask you why you are opting for a traditional mode of financing and how would you repay the loan amount. If you have taken a term loan and suggest that you would revamp your store, then the bank would expect you to use the loan amount accordingly. On the contrary, with asset based loans, there are no restrictions related to utilization.

Repayment terms with regard to asset-based financing are quite flexible. Asset based loans can be paid as per borrower’s convenience and there are no strict rules to be maintained.

This is also a good way to arrange for working capital. With a substantial chunk of inventory, you can easily take a loan and create working capital for your business.

With Accord Financial asset based loans, you would surely feel the benefits that would help you to expand your business comfortably.