Businesses need to grow, right? The entire reason for a business to exist is providing a needed service or product, so of course they need to grow! The problem is growth costs money, and money is finite. Some businesses have their cash tied up on things like inventory and running costs. So, what’s the solution?
The obvious one is a business loan. Taking out a business loan is a great way to provide funds for growth. The problem is that traditional loans are tied to your earnings, which could limit the amount available to you. That’s where your business assets can come in, with something called asset based lending. This is when you get a loan secured on the assets or equipment that your company has available.
Today I’ve got 3 important points for you to keep in mind if you decide to go down this route.
1. You Could Get a Bigger Loan This Way
The biggest advantage of financing your equipment is that it doesn’t limit your loan by basing it on your income. Instead the loan limit is based on the value of your assets, or equipment. That’s great news for some businesses. For example, a manufacturer or distributor may be able to greatly increase their business by putting more funds into equipment or inventory. Their current income might not allow a big enough business loan to perform this upgrade though, leaving them to fall behind their competitors.
If they could somehow get a loan and fund their expansion though, income would go up instantly and everything would be looking great! So, with asset based lending, they may well be able to get a large enough loan to cover their expansion. This is one of the biggest advantages of receiving a loan based on your equipment/asset value. Click the link for more financing details.
2. Be Sure You Can Afford the Repayments!
Being able to afford your repayments is vital! Make sure you’ve considered all possibilities with regards to your income and being able to make your repayments. If something does go wrong or you have over-extended, losing your equipment/assets could be catastrophic.
You can still work with your lender if this does happen of course, but it’s always best to take precautions and make smart decisions in the first place. Always know how much debt your business can handle, and always stick to a safe level.
3. Could Have Higher Interest Rates than a Traditional Business Loan
Some equipment based loans will have higher interest because they are seen as being less secure for the lender. This could also depend on your financial details and how much of your assets you’re actually leveraging. The best way around this is to talk to your lender and keep the loan at a manageable level. Doing this makes the loan more secure and attractive to the lender, unlocking lower interest rates.
Above all, don’t borrow more than you need to, and always make sure you can afford the repayments. Also make sure you have understood all details beforehand so you know the procedure for late/missed payments, as well as the total you will be repaying.