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How Asset-Based Loans Work for Small Businesses

Looking for flexible funding? Asset-based loans (ABL) are secured loans where borrowers pledge assets as collateral. These loans provide a lump sum of funds, secured by assets like equipment or inventory. If a borrower defaults, the lender seizes the asset as repayment. Asset-based lending offers small business owners a reliable option to access capital while securing their loans with tangible assets.<br>

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How Asset-Based Loans Work for Small Businesses

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  1. How Asset-Based Loans Work for Small Businesses

  2. What Is Collateral? Collateral is any asset accepted by the lender to secure a loan. Asset-based lenders typically prefer collateral that can be easily liquidated into cash if the borrower defaults on the loan agreement. Some examples of collateral for a business ABL may include:

  3. Each lender will consider collateral differently, so be sure to check the disclosures to see what the bank will accept as an asset.

  4. Types of Asset-Based Loans Most types of small business loans can be set up as asset-based if you are working with a bank, credit union, or online lender that issues asset-based lending options. Some types of business financing that are commonly set up as ABLs include the following.

  5. Commercial Real Estate Loan CRE loans and business mortgage loans are considered asset-based lending because when a borrower receives a loan to purchase land, buildings, or office space for their business, the loan is secured by the asset that is being purchased. The lender has the right to seize the newly purchased or renovated property if the borrower defaults by placing a lien on the property. Purchasers will not be provided the title for the real estate until the debt is repaid in full.

  6. Equipment Loans Equipment financing is a small business loan option used to make large purchases, like machinery, business equipment, computer hardware and software, and vehicles. Equipment loans are popular because they allow borrowers to finance 100% of the equipment price. The purchased equipment then becomes the collateral on the debt, so the loan term is typically the same as the estimated useful life of the asset.

  7. How To Find Asset-Based Financing for Your Small Business Finding asset-based financing is easy and taking the appropriate steps will ensure that you connect with the right lender and the correct type of business loan option. Before applying for a secured loan, you may want to explore other business financing options, like SBA loans or revolving lines of credit, with the lender you’ve chosen.

  8. Find the Right Lender Traditional financial institutions, like commercial banks, offer secured loan options. Alternative lenders also help their customers secure asset-based loans, and potentially give credit approval to those who wouldn’t normally qualify.

  9. Gather Your Documents The documents you will need to apply for a small business loan will vary depending on the lender, the type of loan, the total loan amount, and your creditworthiness. Preparing the following standard loan documents ahead of time will speed up the loan application and approval process.

  10. Why Choose Biz2Credit?

  11. Thank You

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