Understanding the Collaterals of Asset-Based Lending

Corene Olson
Posted by Corene Olson April 14, 2021

Before beginning to understanding it in depths, let us first understand what asset-based lending is. This is a form of financing that is going to get secured by your tangible assets. These assets include the accounts receivable, machinery, inventory, or any other form of tangible collateral. This is a normal scenario in which a business can borrow up to 75 to 80 percent of the value of their accounts receivables or around 50 percent of their inventory.

As compared to other financing sources, they are a bit easier to qualify for and acquire. This is because the tangible collaterals reduce the risks for the lenders. They can easily sell these to recoup any loss they are acquiring.

What are the types of collaterals?

There are a variety of collaterals that can be used such as:

  • Accounts receivables- In cases of the services industry where they invoice their customers, any receivables that remain at a due within a period of 30 to 90 days are going to be eligible to receive a loan on asset-based lending. The loan that you will be getting qualified with will be depending on the proportion of outstanding receivables by your business. The greater the value of invoices, the greater will be the amount you can borrow.
  • Inventory- If your business is based on manufacturing or wholesale, you can secure your collateral through the stockpile of the inventory. A lender is going to appraise your inventory to determine its resale value and that value is going to secure your loan.
  • Machinery or equipment- Any equipment or machinery is going to serve as good collateral for your business loan. It can also be qualified for business auto loans. If your business is owning a higher chance of business fixture, you can borrow more funds easily. But importantly, your business must own the equipment and not you personally.
  • Real estate- Any retail or manufacturing space that a business owns can be used as collateral because it is a fixed eligible asset. But there are also various factors associated with this lending and you must know every term clearly from your lender to stay clear. There are complicated steps of getting independent appraisals before the loan security and your lender will give you all the details.

You can list out your collaterals flexibly with the asset lending from Accord Financial teams that help you get your funds sooner than ever.