Posted on October 28, 2024

If you’ve been turned down for a traditional loan due to your credit score, don’t give up just yet. Asset-based lending might be the solution you’ve been searching for. This form of financing allows individuals and businesses to secure funding by using assets such as real estate, equipment, or inventory as collateral. Unlike traditional loans that primarily rely on your creditworthiness, asset-based lending focuses on the value of the assets you offer as security. This can open up opportunities for borrowers who have less-than-perfect credit but still need capital for real estate investments, business expansion, or other financial needs.

In this post, we’ll dive deeper into what asset-based lending is, how it works, and why it can be an ideal solution for those with less-than-perfect credit. We’ll also explore the advantages and considerations of this type of financing and how it can help you move forward even when traditional credit options aren’t available.

What Is Asset-Based Lending?

Asset-based lending (ABL) is a type of financing that allows borrowers to secure a loan using their assets as collateral. The assets can vary widely, from real estate and vehicles to equipment, accounts receivable, or inventory. When lenders assess your application for asset-based lending, they focus on the value of the assets you provide, rather than your credit history. This makes ABL a great option for businesses or individuals with lower credit scores, as well as those with limited credit history altogether.

The amount of funding you can receive will depend on the value of your collateral. For instance, a business owner looking to secure funding for an expansion might offer inventory or accounts receivable as collateral. Similarly, someone looking to refinance or purchase real estate might offer the property itself as collateral. This flexibility allows borrowers to tap into funding that would otherwise be out of reach using traditional loan products.

How Does Asset-Based Lending Work?

The process of securing asset-based financing is relatively straightforward. It typically starts with a lender assessing the value of your assets. This could involve a professional appraisal for real estate or an analysis of your business's financials to determine the value of inventory or accounts receivable.

Once the value of the assets is determined, the lender will offer a loan based on a percentage of that value. For example, if your real estate property is appraised at $500,000, the lender may offer you a loan of up to 80% of that value, or $400,000. The exact percentage will depend on the lender’s policies and the type of asset being used.

Unlike traditional loans, which can take weeks to process and often require a deep dive into your credit history, asset-based lending is faster. This is because the lender’s primary focus is on the collateral, not your credit score. As long as the asset is of sufficient value, you could secure funding within a matter of days.

Why Asset-Based Lending Is Ideal for Those With Less-Than-Perfect Credit

For individuals and businesses with less-than-perfect credit, traditional financing options like personal loans, bank loans, or credit cards may seem out of reach. Traditional lenders rely heavily on credit scores to assess the risk of lending. If your score falls below their threshold, you may be rejected or face high-interest rates.

Asset-based lending, however, shifts the focus from your credit history to the value of the assets you offer. This makes it a viable option for many who may not qualify for other forms of financing. Here are some reasons why asset-based lending can be an ideal solution for borrowers with less-than-perfect credit:

1. Collateral Secures the Loan

Since asset-based lending is secured by collateral, lenders have a lower risk of losing their money. This makes them more willing to offer loans to individuals or businesses with credit challenges. As long as the value of the collateral is high enough, you can secure the financing you need, regardless of your credit history.

2. Faster Approval Process

One of the biggest advantages of asset-based lending is the speed at which it can be processed. Traditional loans often require extensive paperwork, credit checks, and long approval times. In contrast, asset-based loans focus on the value of the assets, meaning the approval process can be faster—sometimes as quick as 24 to 48 hours.

3. No Need for Personal Guarantees

With asset-based lending, the focus is on the collateral, not the borrower’s personal credit. This means you don’t necessarily have to provide personal guarantees or go through an in-depth credit review process. For business owners, this can be especially advantageous, as it allows them to secure funding without putting personal assets or credit at risk.

4. Flexibility in Use of Funds

Asset-based lending offers borrowers a high degree of flexibility in how they use the funds. Whether you’re using the capital for real estate investments, business expansion, or paying off high-interest debt, the decision is yours. This flexibility allows you to apply the funding in a way that best aligns with your financial goals.

Benefits of Asset-Based Lending Beyond Credit Issues

While asset-based lending is an excellent solution for those with less-than-perfect credit, it’s not the only reason to consider this type of financing. There are numerous other benefits that make asset-based lending an attractive option for businesses and individuals alike.

1. Improve Cash Flow

For businesses, asset-based lending can help improve cash flow by unlocking the value of assets like inventory and accounts receivable. This can be especially helpful for companies facing short-term cash flow challenges but needing to keep operations running smoothly.

2. Use of Multiple Types of Assets as Collateral

Asset-based lending isn’t limited to just one type of asset. You can use a variety of assets to secure the loan, including real estate, equipment, and even future receivables. This flexibility can make it easier to secure the necessary funding for a range of projects.

3. Maintain Ownership of Assets

Unlike equity financing, where you give up partial ownership of your business or property in exchange for funding, asset-based lending allows you to retain full ownership of the collateral. The only thing you’re putting up for the loan is the asset itself, making it an appealing option for those who don’t want to relinquish control.

Potential Drawbacks to Consider

While asset-based lending offers numerous benefits, there are some potential drawbacks to keep in mind. For instance, if you fail to repay the loan, the lender has the right to seize the collateral. It’s also important to note that asset-based loans typically have higher interest rates compared to traditional loans. That said, the faster access to funding and fewer credit requirements can make this a worthwhile option for many.

Asset-based lending is a powerful financing tool for individuals and businesses looking to secure funding despite having less-than-perfect credit. Whether you’re a real estate investor, business owner, or someone simply in need of capital, this financing option provides fast access to cash by leveraging the value of your assets. With flexible terms and quicker approvals, asset-based lending can help you move forward with your plans even when traditional lenders may turn you down.

If you’re interested in learning more about asset-based lending or how it can work for your specific situation, we encourage you to get in touch with us today. We’re here to help you explore your options and find the financing solution that works best for you.

Contact us today to see how asset-based lending can work for you. Reach out to us at (817) 500-8230 for a consultation.

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