Asset financing refers to the use of a company’s balance sheet assets, including short-term investments, inventory and accounts receivable, in order to borrow money or get a loan. The company borrowing the funds must provide the lender with security interest in the assets. This differs considerably from traditional financing, as the borrowing company must simply offer some of its assets in order to quickly get a cash loan.
Asset financing is most often used when a borrower needs a short-term cash loan or working capital.
In most cases, the borrowing company using asset financing pledges its accounts receivable; however, the use of inventory assets in the borrowing process is becoming a more popular and common occurrence.
Asset financing, in the past, was generally considered a last-resort type of financing; however, the popularity of this source of funding has grown. This is primarily true for small companies, startups and other companies that lack the track record or credit rating to qualify for alternative funding sources.
There are two basic types of loans that may be given. The most traditional type is a secured loan, wherein a company borrows, pledging an asset (equipment, stocks, warehouses or accounts receivable) against the debt. The lender considers the value of the asset pledged instead of looking at the creditworthiness of the company overall. If the loan is not repaid, the lender may seize the asset that was wagered against the debt. Unsecured loans do not involve collateral specifically; however, the lender may have a general claim to the company’s assets if repayment is not made. In the event that the company goes bankrupt, secured creditors typically receive a greater proportion of their claims; thus, secured loans usually have a lower interest rate.
But we at Progressive loans have established good relationships with such lenders, and we can find a solution for you.