Variations of Asset-Based Lending
When you are seeking funding for your small business, you will come across the term ‘asset-based lending.’ While this is an incredibly common way to acquire capital for many companies, it’s hard to define the precise wording. Because of this, AmeriFactors has decided to define and categorize the various types of assets a business can own and how they pertain to lending services.
Types of Assets
Essentially there are two types of assets that a business can own: tangible and intangible; things you can touch, and things you cannot.
Tangible Assets – Tangible assets can be anything from office equipment and machinery to televisions and signage. Everything within your business is going to provide some value which can act as collateral in regards to borrowing.
Intangible Assets – These are things such as brand, intellectual property, stock or value, as well as account-specific information. One of the most common forms of lending is known as factoring, which involves using the accounts receivable, which is an intangible asset.
Styles of Asset-Based Lending
Factoring – Factoring uses the intangible asset known as accounts receivable to lend businesses money. Your accounts receivable is expected profit from current clients, more commonly known as open invoices. For example, if a company has monthly payments with your organization, you are selling off the accounts receivable for that client to a financial institution in exchange for the advanced amount.
Asset-Based Loans – Asset-based loans are different than factoring. Instead of trading your intangible asset for immediate income, asset-based loans stipulate that you leverage the assets as collateral in exchange for a loan. You will still need to pay back the loan with interest, and in the event that you are incapable of paying the loan, you would then risk losing the leveraged assets.
Pledging Receivables – Pledging receivables is as close to being both factoring and a loan as you’re going to see. The idea is that you are qualifying for a loan, yet instead of offering tangible collateral (such as equipment, furniture, etc.) you are instead leveraging intangible assets such as accounts receivable or stock in your company. This is used less frequently, but it is worth noting here as a viable option if you don’t like either of the two options above.
AmeriFactors has been operating as a leader in the factoring business for 25 years. If you would like to learn more about our company or our asset-based lending services, please contact us today!