Asset based financing is the use of a company’s assets as collateral for a loan. There are several factors that affect asset based lending rates. As an expanding business owner, you should consider an asset based loan if you have unused assets. You want to negotiate the largest loan possible with the lowest interest rate. Read on to learn about the factors that affect asset based lending rates.
Types Of Assets
A factor that can increase or decrease your asset based lending rate is the type of asset you put up as collateral. You can offer up approved accounts receivable, inventory, equipment, and real estate. Your loan will typically be between 75-90% of your assets value, with an APR based on the average APR for the year between 7-17%. Approved accounts receivable, private wealth and inventory will get you a larger loan. Before applying for an asset based loan, research the banks and institutions. Certain banks specialize in specific assets and are willing to negotiate a lower interest rate. The type of asset you offer up is the largest defining factor for asset based lending rates.
Improve Asset Quality
Your asset’s quality is another factor that affects the asset based lending rate. Keep in mind that poor quality goods will be considered ineligible as collateral. This means that to improve your chances of getting a favorable rate, you should increase asset quality as much as possible. Clean and maintain any inventory, equipment, or real estate you put up as collateral. Take care to make these assets look as new as possible. You can also improve your lending rate by offering highly liquid securities. Low quality assets may get you unfavorable rates compared to the size of the loan. Maintaining asset quality is a factor that will help you negotiate more favorable asset based lending rates.
Clear Financial Statements
Business organization and preparation are factors that you can control with asset based lending rates. To get the best value to cost loan, you need to be meticulous with your documents. A smart bank will analyze your financial statements carefully. The easiest way to lower your lending rate is to have a well maintained balance sheet. Bad balance sheets are an indicate that you are not a trustworthy borrower. You also need to show your profit and loss statements as well as a sales forecast. Asset based lenders are more concerned with the future of your business, so establish a plan of action for how you plan to make more money. This can help you negotiate a larger loan with lower interest rates. Lack of preparation will factor into an unfavorable lending rate.
Perception Of Risk
Your lender will base your asset based lending rate on how risky your business seems. If you have bad credit and bad payment history, you will receive a higher lending rate. However, you can leverage high risk with high reward. If you can show that your business is turning around and becoming profitable, you are likely to receive a better rate. Being consistent with payments will also lower your risk evaluation, giving you opportunities in the future to renegotiate your loan. Think about how your risk factor will affect your asset based lending rate.
Revolvers: Revolving Lines Of Credit
If you have multiple business, you need to factor revolving lines of credit for your asset based lending rate. Revolvers can help you maximize your loan amount if you are a wholesaler, distributor, or manufacturer. To utilize revolvers, the lender typically requires security and a personal guarantee to avoid business fraud. Use revolvers in your favor to demonstrate low risk. You can also lower your interest rates by obtaining new inventory and assets. Revolvers are great options for large, expanding businesses. Use revolvers to as a factor to impact your asset based lending rate.
Asset based lending can be a risky form of financing if you’re not careful. When applying for asset based loans put up the right kind of collateral, high quality assets, and prepare your statements. After obtaining a loan, renegotiate from time to time by lowering your risk and using revolvers. By understanding these factors, you can affect your asset based lending rates.