Asset-based lending can be an effective way for businesses to secure a short-term cash injection or to gain control of an asset. This is where you receive a loan that’s secured against your company’s assets. As the lender knows that your assets are collateral, they have more confidence and offer you a better loan package. This works both ways: you’re also able to rent an asset yourself. Below, we explore the different types of asset-based loans.
A finance lease is where you rent an asset over an agreed period such as five years. For the duration of this deal, the asset will be on your balance sheet in its full value. In return, you need to ensure that you maintain and insure the asset for the period where you’re in control. At the end of the lease, you’ll usually have the option to purchase the asset for an agreed fee, return the asset or to enter another loan period.
A hire purchase is a similar arrangement to take control of an asset. However, in this scenario you the lender will purchase the asset from another party on your behalf. In return, you’ll pay set monthly fees to the lender over a set period of time. At the end, you can choose whether to return the asset or keep it.
A specialist purchase is similar to both the above, and it’s structured in a similar way. However, a specialist purchase is where you seek out industry-specific expertise to help you make the deal. For instance, if you want to lease a green energy asset, you might look towards a lender with experience in this background.
Working capital loan
There are some situations where you only require a short repayment period for your product. In this situation a working capital loan can work nicely. These deals tend to last three to twelve months and allow you to quickly pay off the loan.
On the flipside, you can use your current assets to secure quality loans. This is where you place assets as collateral if you fail to repay a loan, allowing you to unlock better terms.
Asset-based loans can help any business acquire new equipment or quickly receive a cash boost. Just ensure you consider your situation carefully and you should be well set to benefit.