Asset-based finance is a way of acquiring capital for companies much risk-free compared to traditional methods of acquiring financial capital. This is why using asset-based financial options can be a great way of boosting your capital and taking advantage of the kind of growth opportunities available for your company.
Read on to find out how asset-based finance can be beneficial for your organization.
What is Asset-Based Finance?
There are various ways that you can use for obtaining finance and capital for your company. The most commonly used ones are unsecured lending and secured lending.
Asset-based finance is a type of secured lending where you obtain financial capital for your company by placing your company assets as collateral for the amount you receive.
The collateral that you can use in exchange for the amount you receive can be in the form of:
Inventory
You can use your company’s inventory for purchasing goods for selling later. The inventory that you finance through this method can serve as your collateral.
Equipment
Finance by providing the equipment your company needs to progress and expand. You can also keep some of your equipment as collateral for the new equipment you can buy with your additional capital.
Real estate
Real estate can serve as collateral in situations like a bridging loan. For example, buy a dilapidated property with the idea of reconstructing it in the future. Your lender can offer you a loan based on the future event where your property will be developed and help you earn from it.
Accounts receivable
An asset-based financing option is invoice factoring, where you can leverage the value of your exiting receivable accounts. Your lender can pay you a percentage of the total value of all the receipts outstanding and assume sole responsibility for collecting the same.
Thus, asset-based finance is any loan that you get that is secured by your company’s or organization’s assets. Even finance students try to learn asset-based finance assignment help grow their business.
Asset-based financing is used in scenarios where your company’s cash flow is less or where there is a delay in the cash-collection cycle.
Let us now have a look at how it can help your company.
7 Benefits of Asset-Based Finance
Asset-based financing can enable companies to use their inventories, properties, or accounts receivables as collateral to obtain loans. As a result, they are more flexible than other traditional methods of securing loans.
However, asset-based financing can sometimes be the most beneficial option you can have as a company owner. Read on to find out how exactly asset-based financing can help your company.
Access to new equipment
The most significant advantage of asset-based financing is that it can provide you with new ways to purchase machinery, equipment, and inventory for your company. You may not have been able to buy them if your payments were not spread out and your cash flow was less.
This can have many benefits for your company, including greater output levels and increased efficiency. You can also have greater output through the machinery that you purchase. Your new machinery or equipment can also help your business expand at a reasonable rate. Thus, access to equipment can be one of the most significant advantages of optioning for asset-based financing.
Increased flexibility
Your business can have several reasons why it does not have a perfect history of credit. Your finance company will be judging your loan application based on your recent credit scores. Although the lending criteria of financing companies will be based on individual merits, when you have asset-backed financing options, you can have greater flexibility regarding your loan applications.
You get more flexibility than what you have obtained from a bank. A finance house that deals in asset-based financing will have options for determining the current conditions of your company.
They will endeavor to know about the current state of your business, understand how it needs to operate, learn about your seasonal trends, and finally, adjust your financing repayments, which will, thus, provide you with a more flexible approach.
Improved Cash Flow
Asset-based financing options can be an excellent choice for you as payments here are usually spread over a term that has been agreed upon by both parties. This helps to free up your total working capital and provides you with a fixed rate. In addition, this allows your payments to be entered and budgeted in your overall cash flow.
A common term for your asset-based financing option can be of three to six years. This timeframe is suitable for allowing you to build your inventory and increase your equipment’s life cycle.
If you have enough capital on your end, you can even opt for a Hire Purchase facility. This helps you pay the VAT amount as a part of your entire deposit at the start, allowing you to own your asset when your financial term ends.
Better business understanding
Since asset-based financing options are a popular way of funding your company, well-established financing companies dealing in asset-based lending will have a broad understanding of what your organization requires. When you work with such an agency, you can get advice on the best type of asset that will be beneficial for lending for your company.
Compared to other sources of acquiring capital like P2P lending or even crowdfunding, you often have no idea about the business you are funding. Your sole concern would be the returns you gain from that transaction.
Tax benefits
Another advantage of asset-based finance is that you get tax benefits through government capital allowances. Capital allowances are the financial deductions available to various businesses with a financial year that has the power to reduce liabilities on corporation tax bills.
These allowances apply to different types of items and equipment, including plants, machinery, vehicles, and others. Thus, calculating your asset-based financing can help to reduce some of the costs drawn up in their tax bills.
Although these allowances are available for different businesses, it is subject to change every year, according to newly drafted government rules and regulations. Thus, you must consult your financial advisors for additional information on these.
Lender patience
When your collateral secures your credit facilities, your asset-based financer will be willing to give you more time to pay back the amount you owe. In times of financial difficulties or company obstacles, the lender will also consider giving you additional time to turn your condition around.
This is why financial advisors for big corporations often use asset-based financing options when they predict financial difficulties in the future. Putting asset-based loans in the front can protect economic downfalls and give you enough time for your wealth to materialize once more.
International scope
Asset-based lending options are growing in the international market as different companies compete to provide the best options to companies. In addition, if you have a company with subsidiaries overseas, an asset-based loan can provide you with opportunities for leveraging foreign assistance. Thus, there is a vast international scope for your company to gain foreign assets worldwide.
A burning example of this will be Kaz, a manufacturer of vaporizers and air purifiers, who obtained around $75m in asset financing options in Europe, Asia, and even the United States. This enabled the company to receive additional capital and expand its wings into the international market.
