Showing posts with label Business Financing. Show all posts
Showing posts with label Business Financing. Show all posts

Sunday, September 18, 2022

What Is Accounts Receivable Financing?

In today's business world, you know that owning a company can be more challenging than ever before, especially when it comes to paying the bills and buying new equipment and technology for your business.

Like many businesses that need financing, you may think a traditional bank or other lender is your only option. However, you may have overlooked an unlikely source of financing that's been under your nose the whole time, which is accounts receivable financing. 

What is this, and how can it help your business? Here's what you need to know.

Ability to Receive Early Payments

In essence, accounts receivable financing lets your company receive early payment on some of its outstanding invoices. Should you choose this form of financing, you will then commit some or all of your outstanding invoices to a funder who specializes in this area of business. When you do, you will receive early payment in return for paying a fee to the funder.

Selective Receivables Financing

Though there are other types of accounts receivable financing, such as asset-based lending and traditional factoring, you will probably do best if you opt for selective receivables financing. 

This is a good choice for staff agency business financing, since it gives you the freedom to decide which receivables you will select for early payment while also ensuring you will get paid for the full amount of the receivable. Best of all, financing rates for this option are usually lower, and it will not count as an additional debt against your business.

Improves Your Cash Flow

One of the biggest benefits of using accounts receivable financing is that it can immediately improve your company's cash flow. Rather than hoping your invoices will be paid on time by customers, you can get the money you need much quicker and more reliable. 

Doing so gives you the cash to buy new equipment, invest in new technology, or hire new employees. Consider talking to financial experts about this decision if you lack peace of mind.

Now that you know more about this source of financing for your business, it may be time to rethink your plans about putting off buying that new equipment, investing in new software, or hiring that new employee. With the cash you need in your hand, you can move forward and keep your business growing.

Wednesday, September 14, 2022

A Beginner's Guide to Asset-Based Lending

Asset-based lending (ABL) is a type of loan that uses the value of a borrower's assets as collateral. This type of loan can be quickly accessible for borrowers who have poor credit or who lack the financial qualifications for traditional loans. 

In this beginner's guide, we will explain asset-based lending in terms of how it works, its advantages, and disadvantages, among other perimeters. But first, let's take a look at how asset-based lending works.

How Asset-Based Lending Works

When a borrower makes an application for an ABL, the lender will start by analyzing the value of their assets. Once the valuation is done, the lender will use this value as collateral to fund the loan. 

Usually, lenders will be willing to loan borrowers up to about 90% of the value of their collateral. The terms and conditions of these loans, however, do vary based on the value and type of the security. 

In most cases, lenders will prefer high liquid assets that can easily be converted into cash in case of a default. These assets include accounts receivable, inventory, real estate, equipment, and machinery.

The Advantages of Asset-Based Lending

You may be wondering if this type of loan is right for you. There are several advantages to using asset-based lending to consider in regard to your current situation.

Faster Approval Times

Asset-based lending is quicker and easier to process than a traditional loan. This is because the borrower's assets are used as security to fund the loan. So, there is no need for a third-party guarantor for the loans. 

Therefore, the process of approving such loans will take less time compared to traditional loans. This also makes it a practical option for those in urgent need of cash.

Suitable for Bad Credit Borrowers

Since asset-based transactions are covered by security, lenders will be less concerned about how good a borrower's credit history is.

Relatively Low Interest

The other advantage of ABL is that they charge lower interest rates than other types of loans. This is because lenders are not concerned about the creditworthiness of their customers. 

Whether you need staff agency business financing, want a loan for expansion, or for any other reasons, the ABL will offer the best financing rates. It can be particularly helpful for business financing if you need a quick cash boost to get your business up and running.

The Disadvantages of Asset-Based Lending

While asset-based lending has its strengths, like all financial decisions, it has its risks and drawbacks as well. Here are a few to watch out for.

Asset Seizure

One of the main disadvantages of asset-based lending is asset seizure. As we already discussed, ABL is secured by collateral. Therefore, if the borrower defaults on the loan, the lender can seize the collateral to cover a default.

Not All Assets Qualify For ABL

It is important to note that not every asset qualifies to be used as collateral. Most lenders do focus on high-value assets, and this can be limiting for some borrowers.

Final Thoughts

Asset-based lending is a good loan option for borrowers who need urgent cash and those with bad credit history. So long as you are willing to respect the terms and conditions, you will easily manage the demerits of this type of loan. 

As a beginner, we hope this post has given you enough information and insight about ABL to make more of an informed decision.

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