Asset-Based Lending: Accounts Receivable

Asset-Based Lending: Accounts Receivable

Businesses of all sizes might need cash to cover payroll, materials and supplies, expansion, or other immediate expenses. Asset-based lending could be the solution you need to get you the money you need fast and keep your business moving forward.

What Is Asset-Based Lending?

Asset-based lending involves taking out a loan or a line of credit using your company’s assets as collateral. It can be a solid option for small business owners who don’t have access to traditional lending, as well as those with less-than-ideal credit and those who need money quickly.

Financial providers prefer more liquid assets and typically offer lower interest rates on those assets. The following is a brief list of some of the assets lenders often accept to secure an asset-based loan:

  • Accounts receivable*
  • Inventory
  • Marketable securities
  • Equipment
  • Property

* Accounts receivable are often the collateral of choice for many lenders.

Asset-Based Lending for Accounts Receivable

If your business has invoices waiting to be paid, you can turn them into cash to pay for your company’s needs. A financial provider like Barrington Commercial Capital can typically provide between 70% and 90% of the value of your accounts receivable.

Here are the basic steps:

  1. You agree to terms with a lender
  1. You turn over your accounts receivable to the lender
  1. The invoices are evaluated and verified
  1. Money is transferred to your business account
  1. Your customers pay the financial provider
  1. The provider subtracts its fees and remits the remainder to your account

This straightforward process can give your business the capital infusion it needs to continue operating in short order.

Why You Should Consider Accounts Receivable Financing

Accounts receivable make up a good portion of many companies’ balance sheets. To improve liquidity, some turn to asset-based lending or accounts receivable financing to turn the value of outstanding invoices into cash.

Businesses typically have lengthy payment terms — often ranging from 30 to 90 days — and some customers may be slow to pay. This can create problems with cash flow.

While your company’s invoices are assets, they won’t help you during a cash crunch. Enter asset-based lending through accounts receivable, which enables you to pay your operational expenses, cover payroll, buy new materials or equipment or take care of various other needs.

What Costs Are Involved?

The cost of accounts receivable financing can be flexible, often benefiting both the borrowing business and the lender. However, this flexibility can also make it difficult to compare offers from different lenders.

You must consider fees for service transactions, processing and monitoring, along with other charges. However, your main costs will be determined by how much you want to borrow and your customers’ credit quality.

The better the quality of your accounts receivable, the better your interest rate will be.

Find a Trustworthy Financial Provider

Is your business experiencing an issue with cash flow, or do you see one on the horizon? Accounts receivable financing might help you meet your cash needs and continue moving forward. Get in touch with Barrington Commercial Capital to learn more.

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