Business owners looking for additional working capital will often try to leverage the value of their hard assets (machinery, specialized equipment, vehicles, property, etc.) in order to get access to more money. However, asset based financing goes beyond tangible things, and includes items such as future receivables, as well.
Asset based financing is not a loan
Asset based financing is a revolving line of credit which typically equals 70-80% of the total value of the assets the business has. This line of credit can be used for anything the business needs, and as the expenses are paid down, the line of credit is replenished. The advantage to this is that as businesses grow and increase their assets, or the volume of receivables due to sales, they can apply for higher spending limits on their asset based financing.
No debt on balance
Because asset based financing is not considered a loan, it does not register as debt on the business balance sheet. This is a big benefit for business owners when they need to seek out additional financing for things such as acquisitions, expansion, or new equipment.
Faster than traditional bank loans
Banks have become much more restrictive with their lending policies after recovering from the crash of 2008. They are limited in the types of financing they offer, and fewer than 20% of all business loan applications see approval by the powers that be. Combine this with the time it takes for a bank loan application to get processed and the the waiting period before funds are made available, and getting a bank loan is almost prohibitive to time-sensitive business opportunities. By contrast, asset based financing can be arranged very quickly, and with terms that are much more amenable to business owners than traditional bank loans.
Asset based financing is not dependent on financial history
Bank loans require business owners to supply a lengthy and detailed financial history. Asset based financing, however, is dependent upon the quality of the collateral, as well as the receivables being financed. If your customers are in good standing, and have a decent history of paying their invoices on time, then the company offering asset based financing will typically offer a higher amount on receivables than those who have consistently been late, or have poor credit ratings.