Business financing is a means of obtaining a line of credit using one or more assets as collateral for the extension of credit. Since the assets must be free and debt-free, as well as subject to quick liquidation, they cannot be sold or transferred while the credit line is in place. Below is some information on asset financing and how businesses can choose to use this financing method.
While almost any type of tangible asset can be used to structure an asset financing line of credit, there are several types of assets that tend to be used extensively. Accounts receivable balances are often considered a great asset to use as a security interest. Borrowing against stocks, such as available finished goods, can also be a viable option, as this type of business is readily salable. Another example is to use a piece of property or equipment that has retained a value that is approximately the amount of case work required in the asset financing strategy.
There are several great reasons to look into business financing. A company looking to expand by purchasing equipment or property may want to use asset financing to get the total amount quickly, without having to depend on working capital. In the event that it becomes necessary to terminate a relationship with a senior executive, asset financing can quickly provide the liquidity to fund an exit package without disturbing the company’s cash flow. In some cases, a type of business finance loan may carry a lower interest rate than existing business loans. In such circumstances,
One of the benefits of business financing is that the transaction takes very little time to complete. In essence, the lender simply has to qualify the value of the asset or assets that will be used for security and then verify that the assets are owned by the borrower. Once these two points have been addressed to the satisfaction of the lender, the loan can be extended immediately. Furthermore, asset financing tends to take place without the same structure as traditional business loans. This can be very useful, as the lender and the borrower have the ability to tailor the financing of the assets for the benefit of both parties.
As a third incentive, the company is able to create a line of credit using resources ready for immediate sale, which will surely mean that the repayment of the loan can be made under the terms of the agreement. When it comes to handling an unexpected situation or opportunity, business financing can be a great solution.