What Is Asset Based Lending?

This Blog On What Is Asset Based Lending Was Written by Gustan Cho of Gustan Cho Associates Commercial Lending Information Resource Center

What Is Asset Based Lending

What Is Asset Based Lending? Asset Based Lending or Asset Based Financing are commercial lending programs for commercial borrowers who can secure a commercial loan that is based on the borrower’s business asset and/or collateral. Here are examples of assets and/or collateral that can be pledged on Asset Based Lending:

  • Accounts Receivables the business has coming due for services performed or products sold
  • Inventory at hand and paid for and owned outright
  • Equipment the business owns free and clear
  • Real estate, land, buildings, warehouses, and/or other properties owned by the business

The type of businesses who can take advantage of asset-based lending programs are businesses who are start ups or has not been in business for a long time and has not been profitable who are in fast need of working capital or other types of funding in order to expand their business and do not have a healthy balance sheet or have less than favorable financials on their tax returns. Companies that are rapidly expanding and need working capital to keep up with their work orders and are experiencing cash flow issues will be ideal companies for asset based lending financing.

Accounts Receivables Lending

What Is Asset Based Lending: Accounts Receivable Lending:

Accounts Receivables Lending are very popular asset based commercial lending programs for businesses who need short term financing and cannot wait until payment from services provided or goods sold and have income and/or account receivables at a future date. Accounts Receivables Lending is hands down the most popular commercial lending programs out today for business owners of all sizes and all different types of industry. Account Receivable Lending is established between a business and a commercial lender in order to accelerate cash flow. Funding is made by the commercial lender against the accounts receivables the company has and most accounts receivables advances are anywhere between 70% to 80% of the balance of the accounts receivables due by the business.

Lets take a case scenario where a business is submitting a $1,000,000 of accounts receivables to a commercial A/R Lender the business has by 12 pm on a given business working day. The business should get an accounts/receivable advance by the A/R Commercial Lender of $800,000 if the A/R agreement calls for 80% funding advances on A/R from the business. As the collections of the Accounts Receivables are collected, the proceeds will go towards the Accounts Receivables balanced owed by the A/R Lending Company. Once the A/R lender received the full $1,000,000 by the accounts receivables, the A/R Lender will credit the $200,000 to the business less fees that the Accounts Receivables Lender will take or is agreed among the two parties.

What Are Commercial Cash Advances

Commercial Cash Advances – This is one of the most unique commercial financing options. Because of the similarities this loan option has with Pay‐Day Loans, the loan amounts for this type of financing are generally below $50,000. Forget the traditional documents when obtaining this type of financing for your customer. Basically, if they have a legitimate business that has been in operation for at least a year, they can qualify for this financing option because there is no credit check.
Here are some ideas of the type of companies to approach for this type of financing:

  • Restaurants, Bars
  • Boutiques
  • Retail Shops
  • Automotive Repair Shops
  • Family Owned and Privately Owned Businesses
  • Jewelry Shops, Hair Salons
  • Servers and Processors
  • Flower Shops
  • Health Food Stores
  • Book Stores
  • Bridal Services
  • Electronic Boutiques
  • Baby and Children’s Boutiques
  • Gourmet Shops
  • Hardware Stores
  • Event Planners and many other businesses!

What Is Asset Based Lending And Why Do These Businesses Need This Type Of Commercial Financing?

Ever hear the term that cash is king? It requires a lot of paperwork and questions answered for any business owner to get cash for whatever reason. Financials, credit checks, tax returns, Profit and Loss Statements, bank statements, appraisals, and the biggest hurdle is that it takes time to take out a business loan no matter how much equity you have. Asset Based Lending is based mainly on the types of assets and accounts receivables a business has so it takes much short period of time to close on a commercial loan. Here are the reasons why businesses need fast funding for:

  • Expansion For Their Business
  • Inventory And Supplies
  • Launching A New Product Line Or Buying Products In Quantity For Discount Pricing
  • Sudden Or Unexpected expenses
  • Paying Down Vendor Accounts
  • Marketing And Advertising Expenses
  • Renovations and Repairs
  •  Payroll Expenses

Typical Asset Based Lending Transaction Case Scenarios

What Are Asset Based Lending Typical Borrowers? Many business owners do not have plenty of money in savings and use their incoming profits in buying more inventory or expanding their businesses. A typical case scenario where a business owner needs asset based lending is where a restaurant business owner may have his air conditioning system break in the middle of a hot summer day in July on a Tuesday morning. A commercial air conditioning system for a restaurant is a high ticket item and can cost over $15,000 dollars. Say the business owner is short $5,000. Where is the business owner going to go for quick fast financing in an emergency situation? The solution is that the business owner can go to an accounts receivables commercial lender where the lender will wire the $5,000 based on collateral of future sales and the fee and/or interest for this transaction can be $100 per day until the account receivables loan is paid in full. The accounts receivables lender normally can get this close in three to five business days or sooner.

If you need to know more about asset based lending and/or account receivables commercial lending, please email your inquiry to Gustan Cho Associates Commercial Lending Division at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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