Find out more about the ins and outs of loan against assets. These facts are extremely beneficial if you are planning for this type of loan for meeting your current financial needs.
In its simpler form, ‘loan against assets’, as the term suggests, is based on assets that are utilized as collateral securities. Generally, the assets considered for this kind of loan are accounts receivable, business inventory, or closing stock. Loan against assets would indicate that you are pledging your future returns for acquiring money at present. The lenders of this type of loan would advance funds to your accounts on the basis of an agreed percentage on the value of the assets. Normally the percentage is 70-80% on appropriate receivables and 50% on finished stock.
How to Acquire Loan against Assets
There are numerous financial assistance companies that are keen to offer this facility to borrowing companies. For small entrepreneurs, it is essential to search for the lenders that offer clear lines of credit to young industrialist like them. Although most lenders would prefer to go for large-sized loans as the monitoring cost is the same, it is the task of the entrepreneurs to find the most suitable ones.
So, it is advisable that for securing a loan against your assets, you may like to visit the lenders of your choice with detailed and precise information about your financial aspects. The key is to convince lenders that your proposal is financially viable on long term grounds. You need to present your financial statements with a professional outlook that would indicate that you have an efficient hold upon your business.
Suitability of Loan against Assets
For both rapidly blooming companies and those that are highly leveraged, asset based loans can be an effective source of business funding. At times, such companies basically require a small ‘jerk of cash’ for getting over financial bumps and hurdles. This type of loan is especially complementary with manufacturers, vendors and service firms with a leveraged financial background; especially those whose cash flows are likely to be adversely affected due to seasonal variations and business cycles. Loans against assets are also a smart option for financing acquisitions.
Commercial lenders would only lend you money after they sort out your customers who pay within a span of 2 months, or have a competent rating on credibility. These lenders might not consider your deal with individuals or even small firms as “eligible receivable”. Moreover, the associated costs with loan against assets are more than those related to traditional loans. Here, the rates of interests vary on a large scale and lenders are likely to levy additional audit fees and other fees to the overall loan cost. These lenders might also demand a personal guarantee and a report of your relationship position with other banks. Some lenders might even require your customers to pay directly to them. This means that the control of your cash flow is gained by a third party, which can be alarming at times.
So, strive to gain better understanding and comprehensive insights into the facts about loan against assets. Do opt for this choice of financing your business or other requirements if you must; but only after careful research and thought.