When your business is in trouble, you might be tempted to get a loan from a regular bank so that you have enough money to get yourself through a down period.
However, you will need to seriously consider if this is the right move for you. Banks are likely to throw money at you, and you would be tempted to take it, especially if you are desperate to stay in business.
But, if you lend more money that you can afford, then you will only be in the same position in a few months if the tides haven’t turned into the business. You will find yourself not being able to make the load repayments, and you won’t be able to pay the business expenses.
Therefore, if you initially lend more money than you can afford, then you are only delaying the inevitable and digging an even bigger whole for yourself, later on.
If you are in the position where you need some money to tide you over during a slow period, then you should think about using asset-based lending rather than getting a high-interest bank loan.
Asset-based loan is a specialized method of providing structured working capital and term loans to help businesses, companies large or small to stabilize or grow with the help of their assets, which are pledged as collaterals to keep secure the lending amounts. Specific assets of the businesses help to secure loans. The assets specified are anything from machinery, equipment, real estate to purchase orders of raw materials and finished goods.
For example, if you need money to get you through a slow month, then you could take out this type of loan and use your office equipment as collateral if you default on the payment.
This type of loan is not unlimited, so you can’t take out more money that the office furniture is worth. So, if the company values the office equipment at $1000, then that is how much you can lend.
If an asset-based loan is something you think that you will be interested in, then read ahead to find out some more info about the loan and how it can be a benefit to you.
Speed – When you get a regular bank loan, you have to go through a lengthy process. If you need the money for a specific time, then a bank loan will not suit you. With asset-based loans, they application process is much quicker, and the lender has access to services which speed up the decision making process. So, if you need money quickly, an asset-based load is a better option for you.
Credit – If you apply for a loan with the bank, they will make the decision on whether to lend you money or not, on your credit score. If you haven’t been in business for a long time, then you might have a low credit score, and the bank will not lend you money. With an asset-based lending company, they will use other means to determine if they will be lending you money or not.
Rates – With asset-based loans, the rates and fees are a lot lower than with a regular loan. Therefore, they are a more affordable option, should your business be in trouble. Fees and rates are lower because the marketplace for asset-based loans is a lot more competitive.