In the world of finance, businesses have always sought effective ways to fund operations, support growth, and navigate periods of financial hardship. While traditional loans have been a conventional go-to option, many businesses are increasingly turning towards asset-based lending (ABL). But what is ABL and why is it becoming a preferred method of financing over traditional loans?
What Is ABL?
ABL is a type of business financing that uses a company’s assets as collateral for the loan. This could include inventory, accounts receivables, machinery, and even intellectual property. If the business defaults on the loan, the lender has the right to seize these assets.
Greater Flexibility
One of the main reasons businesses prefer ABL is flexibility. Unlike traditional loans, which can have stringent limitations tied to the business’s credit rating and financial history, ABL allows businesses to borrow money based on the value of their assets. This means that businesses with a strong inventory or account receivables, but perhaps a weaker credit history, can still secure the funds they need.
More Customization
Additionally, ABL offers more customization compared to traditional loans. The amount a business can borrow is directly tied to the value of its assets, which may fluctuate over time. As a result, the borrowing limit can be adjusted, providing a more fluid source of funding that can adapt to a company’s changing needs.
Faster Funding
Furthermore, the approval process for ABL can be faster and less complicated than traditional loans. Lenders are primarily interested in the quality and value of the collateral assets, making the underwriting process quicker and easier to navigate. This is particularly advantageous for businesses requiring immediate access to funds.
On the other hand, traditional loans often involve rigorous financial scrutiny and extensive paperwork, and it can take a longer time frame for approval. Plus, they usually come with fixed repayment terms, which may not be suitable for businesses with unpredictable revenue streams.
While both ABL and traditional loans have their place, it’s clear why many businesses are increasingly gravitating towards ABL. Its flexibility, customizability, and speedier approval process make it an attractive option for businesses looking to bolster their finances, support growth strategies, and navigate the unpredictable world of business finance. Contact Select Capital today to get asset-based lending for your business.