Asset Based Finance

In asset based financing you place your asset as collateral with the bank or the financial company to raise money as loan so as to meet your business financial requirements.

The financiers thus look that:

1. You have a proper credit history.
2. The asset that you are placing with them can be liquidated easily when such conditions arise.
3. And your business history, that is, how long you have been in your business.
   

The assets that you can place as collateral:

1. Accounts receivable
2. Inventory
3. Or any other assets like the trademark, intellectual property.
   

Here although you do not transfer the ownership of your asset to the bank but in case of default payment the bank can take your asset and liquidate it to realize the money that it has given you as loan.

The inventory and the account receivable are the two most common type of asset used to take such finances. When placing account receivable the bank lends you around 70-75% of the value. While in inventory as collateral you can get about 35-80% of the value of the inventory. The amount differs with the different lenders and this you need to compare when you have decided to raise some finance through your assets.

By asset based financing you can raise for your business working requirements, or for investing in any activity to improve the profitability of the business.

Both the small and big enterprises can raise capital through asset financing. Most common type of such financing is mortgages. The company can gain by getting a certain amount of ready cash available to meet its business needs. Besides, the lending bank may also provide with some services such as processing of the accounts receivable, and collection facility of the accounts which are as collateral. But the mode of financing can become expensive to the company under certain situations. Thus the company should weight all the conditions before opting for such methods of finance.

The companies or individuals with bad credit history can also take such finances but for them the interest rates are slightly higher than those with sound credit scores.

There are financiers which are giving asset based loans by online mode. Such facility makes it much easier for you to apply for the loan. But again you need to check all the terms and conditions, the interest rates at which they are extending you the money and above all they are the registered financiers, are genuine and not a fraud financial company.