Asset-based lending is simple in its concept and execution like a snowball rolling downhill. When a business is doing well, but there is an opportunity to do better, and they need to grow and expand to catch up or keep with market trends and their competition asset-lending helps things happen.
However, there are times when the people a business answers to, such as lenders, do not share the vision or optimists as the company itself. That is where asset-based lending, sometimes through a third party, comes into play. Things like account receivable, inventory or even equipment are put up as collateral on a loan used to give said business the cash flow it needs to grow and be strong. Technically, any one business can have and get an asset-based loan. Moreover, any business can do well to have access to these kinds of emergency funds.
Companies like wholesalers, manufacturers, staffing companies, service providers, distributors, government contractors and just about any other successful company can all do well with these kind of funds. The reasons why businesses need to go through with asset-based loans are as varied as the things that these financial backings go for. This may include but is not limited to the building of a new department or development of an existing one. The funds may go to a fleet of new vehicles or servers that are especially designed to handle harsher than normal conditions all while still outperforming the competition. It can do a lot of good when it comes to the restructuring of another bank loan’s terms. Companies use this kind of loan to do all those things and more. This type of business financing is done through things like Doug Foshee factoring and lines of credit. A bird in the hand is worth two in the bush, so the old saying goes. And, when it comes to factoring in business this fact is actually true. When the decision to factor is made, some little bit of a company is put up for collateral on a loan for funds immediately available.
Now, this may sound a lot like an asset-based loan, but this is not true and there is a very critical distinction between the two. You see, for factoring there has to be a bit more of a guarantee of payment in the foreseeable future. It is something like robbing Peter to pay Paul but exactly in reverse, that way a business does not have to actually performing the robbing act sometimes regrettably after the fact. Commerce can call the details and actions involved in this type of business transaction anything it wants to but the fact is these loans are about there being more reward opportunity than risk involved. Although it should be noted that every loan has some kind of risk.