How to Improve Cash Flow with Asset-Based Lending
Sticking to your company’s budget is hard during your first few years, particularly if you’re having problems with cash flow. To calculate this value, you subtract your total expenses, such as payroll and rent, from your total income. If the value is negative, you don’t need to panic, but you do need to find a way to increase your cash flow. One option is to use asset-based lending, which is a type of lending that uses your equipment, accounts receivable, and property as collateral.
Determining if Asset-Based Loans Are Right for You
Before you take out an asset-based loan, you need to make sure your company’s profile fits what lenders are looking for. As with most traditional loans, you must demonstrate your business’s financial health. Your financial statements must show that your company is likely to stay in business with the help of extra funding, and your credit score must be high for your company’s size and age.
In addition to these financial requirements, you should also have a need that cannot be addressed with traditional lending. Perhaps you do not have a high enough credit score for traditional banks, or you cannot afford the interest on standard loans. Asset-based loans are also helpful for companies that need financial help throughout the year for many projects rather than one large investment.
Understanding Asset-Based Loans
Once you’ve determined that asset-based lending is right for your company, it’s time to understand how these loans work. The process varies slightly depending on whether you’re using equipment, accounts receivable, or both as your collateral. Generally, though, your potential lender reviews your assets and gives them a value. Depending on this number, the company decides how much money it can safely lend your business. You receive the money, and you must repay it within the term specified in your contract.
Using Your Asset-Based Loans
Now that you’ve received your funding, it’s time to use it to get your company back on track. Now that you have a positive cash flow, take care of late bills and get ready for the next payday. Remember, asset-based loans are not earmarked for a certain purpose, so you can use them for whatever expenses you have.
When your cash flow is negative, it’s easy to panic and assumes that your business will be bankrupt within a year. Instead of giving in to your fear, apply for asset-based lending, and complete your financial obligations on time.