Asset-Based Lending for Small Businesses

When invoice factoring is insufficient, asset-based lending takes you to the next level, whether you need working capital, growth or acquisition finance, a loan for shareholder change transactions, cash out, or financing to buy and build. Asset-based lenders secure a line of credit against balance sheet assets such as your inventory, plant and equipment (PP&E), business property (real estate), or accounts receivable assets.

If your small business is ready to expand or upgrade, Viva’s asset-based lending programs are the ideal next step up from factoring. As a trusted asset-based lending company in Texas, we are dedicated to providing solutions that benefit your business. Tailored to meet your company’s needs and with greater flexibility than banks can offer, our easy-qualify programs can help you accelerate growth even if your business hasn’t reached its full potential yet.

Asset-Based Lending is the Ideal Small Business Financing Solution

So, what is asset-based lending, and is it the right financing option for your business? Asset-based loans, also referred to as secured loans, allow you to unlock equity in your business assets so your company can address its current needs and grow. An ABL lender focuses primarily on the value of your business’s assets, which are used as collateral to secure financing. Often considered the next step up from factoring, business asset loans can provide you with greater access to cash but with fewer qualifications than traditional lending programs have.

There Are Lots of Benefits to Asset-Based Lending

Asset-based lending for small businesses is a financing option that allows companies to leverage their assets to secure loans for various purposes. Unlike traditional business loans, which may rely heavily on credit history, an asset-based loan uses assets like accounts receivable, inventory, or equipment as collateral. This type of financing can be ideal for businesses looking to address immediate needs or fund expansion, as lenders focus on the value of the assets rather than credit.

The borrowing base—the total value of your assets—determines both the advance rate and the amount of funding available. Some lenders also offer asset-based term loans, providing added flexibility for businesses that qualify.

Additionally, accounts receivable financing, a subset of asset-based lending, can be especially advantageous for companies with significant outstanding receivables.

Asset-Based Lending (ABL) Qualifications Are Minimal

• Collateral: Depending on your lender, almost any business asset can serve as collateral. Common examples include equipment, accounts receivable, and marketable securities.
• Revenue: Minimum revenue requirements for asset-based loans will also vary from one lender to the next but are generally about half of what you might need to qualify for an unsecured loan.
• Credit: You can qualify even if you don’t have an excellent credit history—the threshold is much lower for asset-based loans than it is for traditional bank loans or lines of credit.
• Time in Business: Whereas traditional options usually require at least two years in business as a starting point, you may get approved with as little as one year in business.
• Reporting: You’ll need to submit collateral reports and CPA-reviewed financial statements. While this is an extra step factoring doesn’t have, it’s not time-intensive for an organized business owner.

Types of Collateral Used in Asset-Based Lending

When securing an asset-based loan, businesses can leverage a variety of assets as collateral tailored to their unique needs. Each collateral type offers distinct advantages, providing businesses with the flexibility to unlock the value of their holdings. Below are the most common forms of collateral:

Accounts Receivable

Accounts receivables, representing payments owed by customers, are among the most frequently used assets to secure asset-based loans. These receivables are highly liquid, ensuring predictable cash flow that appeals to lenders. However, lenders may apply discounts to account for delays or non-payments when  determining the borrowing base.

Inventory

Inventory financing allows businesses in manufacturing, retail, or wholesale sectors to use stock as collateral. This approach is particularly beneficial for companies experiencing growth, as it enables them to replenish stock and meet customer demand without disrupting cash flow.

Fixed Assets: Equipment and Real Estate

Fixed assets, including machinery, vehicles, and commercial real estate, are commonly used to secure larger loans. These assets provide long-term value and can often serve as primary collateral, even if they’ve experienced depreciation. Incorporating fixed assets into the borrowing base ensures robust credit availability.

Other Asset

Some lenders may accept less traditional assets—such as marketable securities, contracts, or intellectual property—as collateral. The eligibility and valuation of these assets vary and depend on the lender’s criteria and the specific business purpose.

How Collateral Works in Asset-Based Lending

The asset-based lending process revolves around assessing the value of your assets. Lenders calculate the borrowing base to determine the loan amount or credit line businesses available to your business. In many cases, these loans are structured as revolving credit, providing ongoing access to funds as repayments are made.

It’s important to select the right type of collateral based on your business objectives. Whether you’re funding growth, making an investment, or stabilizing cash flow, aligning your collateral with your specific needs ensures that the loan is both effective and manageable.

Asset-Based Lending is Suitable for a Multitude of Situations

• Improving Cash Flow: If your business is experiencing a lull or hardship, you can use your loan to cover everyday expenses, such as payroll.
• Business Expansion: Growth-minded businesses typically put their cash into development-related activities, such as creating new products, expanding into new markets, or remodeling a space.
• Purchasing Inventory: If a lack of inventory is preventing your business from accepting more orders or increasing your stock, you can use your lump sum for procurement.
• Purchasing Equipment: Businesses that need new technology or additional equipment in order to grow often use asset-based financing. In some cases, the equipment being purchased serves as collateral.
• Acquisitions: Instant growth can be attained via business acquisitions—asset-based loans are your vehicle.

Asset-Based Lending Success Story

Pandemics and forest fires are no match for Sun City Pallets. With a bit of grit and tailored funding solutions from Viva, this burgeoning startup is overcoming the odds. Find out how the Texas company grew revenue by 400% and where it’s headed.

Are Asset-Based Business Loans Right for You?

However, if you need this level of funding and feel confident your business has the means to pay off the loan, asset-based lending can be your ticket to exponential business growth.

Find out which funding solutions are right for your business.