Physical assets are an asset of a business but these assets have the precious capital tied down. The assets can be in stock, machinery, plant and property. In order to increase working capital or cash flow the assets can be converted into cash without impeding the business progress. The injection of cash into a running business acts as a stimulant and you can increase your business, acquire latest equipment and machinery and even restructure the business.
The cash can be used for multiple purposes that best suit the business, even for an acquisition or a management buy-out. Asset based borrowing from a bank frees the cash that is tied down by the assets and significant amounts of working capital becomes available to expand business or use the cash where it is best required.
WHY ASSET BASED LENDING?
Bank loans are drying up and are being replaced by asset based lending. In U.K. asset based lending is fast becoming the first loan preference of companies. The market is literally, flooded with banks offering lucrative loan deals on asset based lending. The major banking powerhouses dominate the market and truly have the lions share and control 80 percent of the asset based lending.
Minimum 1 million pound business turnover is the benchmark for asset based lending. The need arises for asset based lending when your business has increased levels of sales on credit, stocks are slow in moving and to buy raw material, pay staff salary, or pay members and address business needs such as to sell products and services.
ADVANTAGES OF ASSET BASED LENDING
Mostly small companies strapped for cash have been using the facility of asset based lending to generate quick money using unpaid invoices, debtors, stock or machinery. The immediate availability of working capital to boost business is cost effective. The loan is scalable, that is, it grows in line with the company business. Cash flow ups and downs are easily managed because asset based lending is flexible as compared to fixed lending.
OBJECTIVES OF ASSET BASED LENDING
Almost 40 percent of businesses in U.K. facing cash shortages or having debts are engaged in some form of asset based lending. For example, money borrowed by you to make an investment is spread over the life of the asset based loan and allows you to save cash.
The objective of asset based lending is to allow you to evaluate your business growth and needs and infuse immediate cash into your business. For instance, you require money for working capital to acquire new machinery to replace obsolete machinery. The business progress shoots up and instant cash is needed to not to slow the growth.
Asset based lending can be also availed for seasonal sales, short term operations, mergers and to buyout shareholders.
Keep your financials options flexible to expand your business and let it not be cash-strapped. Asset based lending allows you to turn your assets into cash.