What Is an Asset-Based Loan?
While there’s a collection of various financing products that fall under the definition of asset-based loans, the 2 most popular are business term loans and lines of credit. In the case of term loans, you would repay the loan’s advance (plus interest) over the agreed upon term.
A line of credit works differently, as you don’t receive a lump sum like you would with a term loan’s advance. Instead, you’re given access to a credit line and can draw from it whenever necessary. You’ll only owe interest on the money you decide to use.
Whether you get a business term loan or a business line of credit, the assets that you used as collateral serve as the guarantee. If you were unable to make your required payments, the lender could take possession of the asset.
Using an Asset-Based Loan
Asset-based loans are often used to obtain working capital. Maybe your cash flow is struggling due to a slow sales season or the need for unexpected repairs to crucial equipment. Or you might be training new employees or upgrading your business’s technology.
Whatever the situation, asset-based loans provide convenient access to cash that can help you shore up your business operations or take advantage of new opportunities.
