Asset-Based Lending Definition

How asset-based lending works: When a company decides to sell its accounts receivables to a financial institution, it is called invoice factoring or asset-based financing. Asset-based factoring in the United States has historically been one of the most sought-after methods of financing that immediately improves the cash flow of businesses in any industry, including staffing, security guards, manufacturing and janitorial services.

Line of Credit vs. Factoring with Capital Partners

Comparing these two items can be helpful but often confusing. While a “line of credit” and “factoring” are conceptually different, both are sought for the same purpose: to easily provide working capital to meet immediate cash-flow and working-capital demands.

Asset-Based Lending vs. Asset-Based Loan

Traditional banks have been the most common source for lines of credit. Businesses qualify based on the length of time they have been operating with a profitable two-to-three-year history. The line and the amount of the line are secured by hard assets like equipment, company inventory and vehicles. In the event of a business downturn, the bank most likely will have liens on all assets listed in the line of credit agreement, including any cash assets.
The application process can be long and taxing. Many different “loan committees” look over your application package and make recommendations about the worthiness of YOUR business, which influences the interest rate you will be charged. The line itself is usually a variable, prime rate, plus a few points, and generally established for a fixed amount of credit. When your business grows and you hit the top of your credit line, you would have to renegotiate for more money and wait again for re-approval. After the lengthy approval process, there are filings fees, points to process and document fees. Plus, don’t forget there are monthly payments based on the loaned amount!

How Does Asset-Based Lending Provide Working Capital?

Straight invoice factoring is an alternative financial option that operates with a much less stringent process. Most factoring companies look at the credit worthiness of YOUR customers and not so much at your company. So if you are a newer business and have a short track record with less-than-perfect credit history, chances are you will be approved for factoring. One of the greatest benefits to invoice factoring is improved cash flow; you can actually raise your credit rating by paying your suppliers and others in a timely manner.

What are the basics of working capital finance? The factoring fee is fixed and does not change. Programs can include a protective non-recourse plan that protects your company in the event your customer goes bankrupt and leaves invoices unpaid. There are a variety of customized programs that are simple to understand and easy to budget for. There are no monthly payments, minimums or volume requirements, so no matter how many accounts or customers you are selling to, you know exactly what it will cost to factor your invoices. Also, NO debt is incurred. You sell accounts receivables for cash.

Benefits of Asset-Based Lending

The client approval process is easy, and in hours you can be approved to factor your invoices. The documentation process is simple, and once your company is approved, invoices submitted for factoring are usually funded within 24 hours. Not only that, but there is no additional approval process required as your business grows, so there is never a delay in your cash flow. When you need more cash, simply factor more invoices. With our extensive database and credit resources, you can get credit approval on a new customer within minutes.

Contact Capital Partners today and let our asset-based lending experts help you get cash fast!