Equipment Financing
Businesses can also pledge their equipment as collateral to secure funds. In this case, the loan amount is based on the equipment value.
Factors like the time value and condition of the equipment determine the loan amount.
If the loan fails to repay, the lender recoups the equipment used as collateral.
Real Estate Financing
Properties are also a common type of asset used to secure capital. Loans backed by mortgages are secured loans as real estate tends to retain value over time.
The high value of properties allows businesses to secure more funding.
Why Use Asset Finance and Asset-Based Lending?
The benefits are abundant regardless of whether you use financing to purchase assets or use assets (as collateral) to obtain funding.
It all depends on the growing needs of the business.
- Securing Assets Through Financing
Minimal Upfront Costs:
Assets are vital to a company’s operation. However, many of them tend to be quite expensive, especially for SMEs who are tight on budget.
Asset finance helps businesses pay minimal upfront costs.
Releases Working Capital:
Businesses can free up working capital as the asset’s cost can be spread over time: repayments are made in instalments along with interest.
Crucial capital to be spent on the asset can thus be invested in business expansion activities.
Decreased Risk for Seller:
Upon leasing, the asset provider takes the risk of depreciation, asset servicing, and replacement until the client has made the full payment.
- Securing Financing Through Assets
Objective Valuation Based on Asset:
Using assets as collateral allows businesses to get financing based on the asset value, not just a company’s creditworthiness.
Collateral-Free:
Businesses can get quick access to capital using receivables as collateral. No additional assets are required to support the financing application, and the receivable is the security in case of a buyer payment default.
Thus, making financing collateral & hassle-free.
Improves Cash Flow Cycle:
Asset-based financing speeds up a business’s cash flow while securing the extra cash needed to procure the asset. It is ideal for most companies facing poor cash flow.
Capital for Business Expansion:
It is the perfect short-term funding solution for businesses. Cash advanced can be used to pay employees and suppliers, or be invested in expansion and growth activities.
