The Basics of Asset-Based Lending for Cash Flow
Asset-based lending revolves around using your business assets to apply for funding. There are several ways to use this flexible, fast financing option, from purchasing inventory to investing in new technologies. One of the most useful ways to take advantage of ABL financing for small business owners is for smoother cash flow. This guide can show how it works, why it’s popular and when it’s right for your business.
Asset-Based Lending for Resolving Cash Flow Issues
Many small businesses have problems with working capital. Simply put, it’s not easy to balance your incoming funds and outgoing capital when you need to continually purchase inventory. If you offer credit to your customers, your finances can be even tighter.
ABL financing can help alleviate some of that working capital stress. This type of financing gives you an infusion of short-term capital with virtually no strings attached. Qualifying is easy and you don’t need to go through strict credit score requirements.
With extra capital, you can cover your monthly obligations without problems. Once you get paid by your clients, you can pay back the loan. Many businesses of all sizes use ABL in this way. Some even have the program set up every month, customized to their companies’ normal cash flow needs.
Benefits of Working Capital
There are many advantages to having plenty of capital on hand. Asset-based lending requires time and effort, but the benefits can outweigh them.
First, when you can pay your bills on time, it’s good for your credit score. As your history of on-time payments grows, it becomes easier for your business to qualify for long-term financing solutions, such as lines of credit.
Also, fulfilling your obligations helps you build a good relationship with your suppliers. They may be inclined to offer you better purchasing terms, which can save you money. Also, if the extra capital allows you to purchase inventory in bulk, you may qualify for better discount tiers on your orders.
Risks of ABL Financing
Asset-based lending also has a few downsides that you need to keep in mind. In a way, ABL financing is like a table saw: very useful when used properly, but risky without proper safeguards.
To avoid interest rates cutting into your profits, you need to remember that asset-based loans are only for short-term needs, such as cash flow. You should pay them off as quickly as possible like you would a credit card. Before signing up, you need a repayment plan.