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2018-08-08 23:59:41Funding & FinancingEnglishAsset-based financing can be a very convenient option for short-term funding. This article attempts to explain the term Asset Finance and... Business Term: What Is Asset Finance?

Small Business Term: What Is Asset Finance?

1 min read

If your company needs a business loan, you may want to consider asset-based financing. But what is asset finance?

Asset finance is a type of lending that lets you use your company’s physical assets as collateral to secure a loan. Examples of physical assets you may be able to use include 1) Equipment 2) Inventory 3) Machinery 4) Accounts Receivable, and sometimes even 5) Buildings or Warehouses.

Why would you choose to asset finance your loan rather than following traditional lending avenues? The most common reason is that you’re not able to get approved for a bank loan due to a low credit score. Asset finance lenders look at the value of your current physical assets. They do not make a determination based on your past financial history.

Another reason you may want to look into asset-based financing is that your money may not be immediately available. But you need liquid assets right away. For example, you need to pay your employees. But your money is tied up in inventory. In such a situation, you may want to get a loan based on your physical assets.

Also, you might need to pay for the raw materials required to produce your inventory. But you do not have the requisite capital. In such a case, you could get an asset-based business loan to cover those initial expenses. Once you sell your inventory and generate profit, you can use that money to pay back the loan.

Therefore, you should be confident that money is going to flow back into the business in the near future. This is because you are using your physical assets as collateral to secure a loan. Though in an ideal situation, you would have orders in place to ensure that you can pay the loan off quickly.

Thus we can say that asset-based/ personal financing can be a very convenient option for short-term funding. Just make sure you have a plan in place to pay back the loan. This would ensure that your physical assets remain under your control.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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