Asset-based financing is an ideal solution for businesses that want to improve their cash flow and avoid incurring debt. Not only is asset-based lending more flexible than other types of business funding, such as traditional bank loans, but it’s also often easier to obtain and more cost-effective. With asset-based financing, you don’t need collateral or a long credit history. You can use the funds when and how you see fit.
What is Asset-Based Lending
Factoring companies usually offer two factoring options: recourse and non-recourse factoring. Recourse factoring allows you to sell a customer’s unpaid invoice to a factoring company. The company will then advance you a large percentage of the invoice value and collect the payment from your clients. Once your client has paid in full, the rest of the money will be given to you, minus a small factoring fee. With recourse factoring, you receive a lower upfront payout because you will be held liable if your customer doesn’t pay. With non-recourse factoring, the factoring company assumes the liability of your customer paying and you will be paying a higher factoring fee.
Much like factoring, this option allows you to receive upfront the value of existing purchase orders (rather than invoices) and confirmed order backlogs. It is very similar to factoring in the sense that you don’t have to wait for your customers to pay. Your accounts receivable are put to work for you right away.
Inventory financing allows you to use existing inventory as a form of credit. Some business owners who have invested a great deal in their inventories may consider this type of funding, but interest rates are often fairly high and their businesses can be at risk if their inventory moves slowly. For companies with a fast inventory turnover rate, inventory financing might be an option worth exploring.
Is Asset-Based Lending The Right Solution For Your Business?
If your customers take weeks or months to make payments, then asset-based lending can help fund this gap in your cash flow. In this economy with long sales cycles and fewer purchases, receiving an advance that is based upon your own assets – your accounts receivable (invoices or purchase orders) or your inventory – can make good financial sense.
At Interstate Capital, we understand that different types of funding will benefit different types of businesses. Our factoring professionals are experts in asset-based funding solutions that help people turn their accounts receivable into working capital to use right away. By simply factoring their invoices with Interstate Capital, thousands of businesses have increased their cash flow and achieved new levels of success since 1993.