Asset Based Lines Of Credit: What New Businesses Should Know
Working capital is essential for all new businesses to grow and flourish. However, taking out traditional bank loans are not always an option, mostly because the conservative lending practices of traditional lending institutions prohibit “young” businesses from accessing the funding they need. In order to sidestep these obstacles, many new businesses are opting for asset based lines of credit – and there are a few things entrepreneurs should know about them.
Asset Based Lines Of Credit As An Alternative To Banks
Over the past few years, banks have become more restrictive with lending policies and requirements for businesses. Companies need to have high credit ratings, demonstrate a strong financial history spanning years, and (usually) a standing record of borrowing from the specific bank being solicited for the loan. Few small businesses meet the aforementioned requirements, nor do entrepreneurs necessarily want to take on additional debt, as it can be counter-productive in the early stages of development, when being able to make use of as much revenue as possible is a key factor in getting the business off the ground. The difference between bank loans and asset based lines of credit is night and day.
How Asset Based Lines Of Credit Work
Asset based lines of credit are structured around property owned by a business. For this type of funding, “property” consists of real estate, equipment, inventory, and receivables. This revolving line of credit is based on the value of owned property, which gives businesses access to an extra source of capital without having to place debt on the balance sheets. Businesses can use asset based lines of credit as needed, as opposed to taking one lump sum of capital (which happens with bank loans), and replenish the line, just as with most lines of credit.
Financing That Grows With Your Business
Asset based lines of credit belong to a very unique family of financing solutions in that the amount of credit available actually increases as your business grows. As a company gets new equipment, expands to larger facilities, buys out other businesses, and makes larger sales, the spending limits on asset based lines of credit will also increase.
If your businesses could use asset based lines of credit for working capital, or you would like to explore other alternatives to debt-based financing, call Bayard Business Capital and Consulting at 314-312-4603. We can help you set things in motion to get the financing you need for your business.