Whether you’re a start-up, limited liability corporation (LLC) or a sole proprietorship, an asset-based loan is key for expanding your company. These forms of loans are based on assets (such as inventory) that is used as collateral. You are essentially promising the bank/lender that your revenue will match (or surpass) their initial loan payment.
If you have a few minutes, I’d like to share some insights for making sure lenders look favourably on you.
1. Stand Strong
Business partners, colleagues and even your friends may try to deter you from taking out an asset-based loan. Citing risks such as default payment, using the process as scare tactics or even losing your business. Don’t listen to nay-sayers. If you’re the sole proprietary owner of your business, it is your business – and your path is yours to choose. If your company has positive financial statements, good reporting systems, and has consistently sold inventory (as well as customers who pay their bills on time)… you can secure an asset-based loan or auto loan without fuss.
2. Will You Be Happy?
There are many banks and financial institutions that will grant you the loan you desire. However, in the words of the immortal Felix Dennis (co-founder and CEO of Dennis Publishing): “Making money is a drug. Not the money itself, the making of money.” Felix shared this wisdom in his phenomenal “business bible”: How To Get Rich.
Since making money is a drug—and you certainly will make money from a loan—it’s important to ask yourself if the decision you’re about to make will make you “high”. If the loan you’re seeking will send you over the moon, do all you can to acquire it. If not, it’s time to keep searching for more institutions and lenders.
Remain calm as you assess the loan amount (how much you will borrow, how much you’ll use on down payment), the annual percentage rate (which is usually determined by your credit rating) and the loan term/length.
3. Hone Your Negotiation Skills
Collateral is an extra layer of security that shows lenders you have an alternative form of loan repayment. These can include property you own, your business’s inventory, or cash savings and deposits. Keep these tips in mind to help your chances of being accepted by lenders:
- Keep detailed and thorough records of your asset(s) worth
- Know what you can and cannot use as collateral (title of ownership, homes, cars, watercraft etc.)
- Know how to negotiate the loan and its term and conditions whenever possible (“Negotiating As If Your Life Depended On It” by Christopher Voss is one resource that will help you perfect your communication skills and negotiation strategies)
4. Remain Calm
The ordeal of loans—and paying them back in full—can leave many of us overwhelmed. (Especially while you’re speaking to a lender in person.) It’s entirely reasonable to become a “stress junkie”, especially if the return payment deadline is looming in.
It is essential, then, to rationally asses all of your other choices and options during this whole process.
It’s entirely within your power to focus on the task at hand: having the thrill of your lifetime expanding your business while generating higher revenue. One way to do that is try out various calming meditation methods to remain clear-headed, peaceful and objective.
Remember: lenders will look at your company’s history, business credit, annual revenues, balance sheets and your equity contributions. A credit check will be issued, which will be no problem if you operate a healthy business.