Many small business owners will find themselves in need of financing at one time or another. In fact, cash flow issues are the reason 82 percent of small business fail. Most small businesses typically turn to their bank to get the financing they need. However, many are not yet profitable enough or don’t have a strong enough revenue or personal credit history to qualify for traditional financing. This doesn’t mean obtaining financing is impossible. Asset based lending can be an effective solution for businesses experiencing cash flow issues.
Asset based lending is business financing that is secured using a company’s assets as collateral. With unsecured loans difficult to get, the popularity of ABL has increased in recent years. It offers benefits similar to other financing options, such as a line of credit or an SBA loan but with less stringent qualifications.
Qualifying for asset based lending is easier than obtaining a traditional bank loan or line of credit. Instead of the extensive revenue and credit history, all that is typically required is a brief track record of profitability, stable financial management and most importantly, descriptions of assets that can be used as collateral.
One of the most common and easiest assets to leverage is a company’s accounts receivable. This is known as invoice factoring. Invoices owed by customers with strong credit and a solid payment history provide the perfect collateral as they can easily be turned in cash. Most lenders prefer to factor invoices that are paid in sixty days or less. Some asset-based lenders will also consider a company’s equipment or inventory as collateral, but leveraging creditworthy invoices is preferred by most lenders and presents the least risk for the business.
Asset based lending offers greater flexibility than many other types of business financing. There are typically fewer restrictions or covenants. While the funds must be used for a business purpose, this gives a business owner more control over how they are used.
Additionally, because the financing is based on the value of your accounts receivable and other assets, as sales increase and business grows, the amount of financing for which you qualify increases as well. Should you need to apply for additional funding, the process will be even easier. This can be extremely beneficial for companies who are growing quickly and need extra working capital to keep up.
Typically, companies that utilize asset based lending are small to mid-sized business that are experiencing growth. Establishing their creditworthiness with an asset based lender will build their business credit, opening up other financing opportunities and increase access to additional working capital. This improved liquidity can stabilize daily operations and allow you to focus on cultivating business growth.
The need for funding is often urgent and receiving it in a timely manner is crucial. Asset based factoring can be obtained much quicker than a traditional bank loan. Once the underwriting process has been completed, you can receive funding in as little as a few days. This access to quick working capital will allow you to keep up with operating expenses and fuel business growth without waiting for your invoices to be paid.
CapFlow Funding Group is an asset based lender specializing in factoring. We also partner with other alternative lenders and will work with you to find the best funding solution to provide your business with the working capital you need. Capflow delivers working capital with limited paperwork, same day approvals, and deposits within days, not weeks. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.
