Business financing uses assets as collateral for credit. Accounts receivable, inventory, and property/equipment are commonly used. It’s useful for quick liquidity, lower interest rates, and tailored loans. Transactions are quick and repayment is made with assets ready for sale.
Business financing is a means of obtaining a line of credit by using one or more assets as collateral for the extension of credit. Since the assets must be free and unleveraged, as well as subject to rapid liquidation, they cannot be sold or transferred while the credit line is in effect. Below is some information on asset financing and how companies may choose to use this method of financing.
While almost any type of tangible asset can be used to structure a business finance line of credit, there are several types of assets that tend to be widely used. Accounts receivable balances are often considered a great asset to use as a security interest. Borrowing against inventory, such as available finished goods, can also be a viable option, as this type of business is easily marketable. Another example is to use a piece of property or equipment that has held a value that is approximately the amount of the work case called for in the asset financing strategy.
There are several very good reasons to look into business financing. A company looking to expand by purchasing equipment or property may want to use asset financing to get the full amount quickly, without having to depend on working capital. In the event that it becomes necessary to terminate a relationship with a senior executive, asset financing can quickly provide the liquidity to fund an exit package without disrupting the company’s cash flow. In some cases, one type of business finance loan may carry a lower interest rate than existing business loans. In such circumstances, paying off the loans with a higher interest rate and opting for asset financing is definitely in the best interests of the business.
One of the benefits of business financing is that the transaction takes very little time to complete. In essence, the lender simply needs to qualify the value of the asset or assets that will be used for security and then verify that the assets are owned by the borrower. Once these two points have been addressed to the lender’s satisfaction, the loan may be extended immediately. Furthermore, asset financing tends to occur without the same structure as traditional business loans. This can be very useful, as the lender and borrower have the ability to tailor asset financing to the benefit of both parties.
As a third incentive, the company is able to create a line of credit using assets that are ready for immediate sale, which will certainly mean that repayment of the loan can be made according to the terms of the agreement. When it comes to dealing with an unexpected situation or opportunity, business financing can be a great solution.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
