Whether you want to supercharge growth, invest in new products or cover lost revenue, business finance can be essential for a whole bunch of reasons. Record numbers of UK SMEs are using it to cope with the current economic uncertainty. There are an overwhelming variety of finance products out there though – with each one working slightly differently from the last.
Asset-based lending is one such option that offers an alternative to traditional bank loans. It’s an ideal route for businesses that might struggle to secure finance based on their credit history and financial performance alone.
With UK economic growth expected to halve this year, businesses will need everything they can get to survive and thrive. It’s still important to weigh up the pros and cons to judge whether borrowing is right for yours though. Below, read our quick guide to asset-based lending to do just that.
How Does Asset-Based Lending Work?
Asset-based lending refers to business loans secured by collateral, instead of focusing on your credit score. This includes a range of physical business assets like stock, equipment, and property, plus intangible assets such as intellectual property in some cases.
The value of your assets determines how much a lender will offer you. If for whatever reason you become unable to make your repayments, the lender could repossess your nominated assets to recover their money.
What Are Its Advantages?
For most businesses, the main benefit of this product is its accessibility. Asset-based loans are usually easier and quicker to get than conventional term loans as an imperfect credit history won’t rule you out.
Most asset-based loans can be used for any business purpose too. Whether that means improving your facilities or boosting cashflow in a quiet period, you’re effectively unlocking the value tied up in assets you already own.
What Are Its Drawbacks?
The main risk of this type of lending is that you could lose your assets if you can’t keep up with the loan repayments. Your credit rating will also take a hit as a result. Some asset-based options come with extra fees too – so it’s important to shop around and read the fine print.
Is It Right For My Business?
Asset-based lending is a great option for a variety of businesses, though crucially, you’ll need to have high-value assets to offer as security.
Beyond this starting point, it comes down to whether you’re prepared to risk losing your assets if disaster strikes. If you are, you can typically online with a variety of traditional and alternative lenders.
Featured image: Pixabay (JHertle).
