Asset-Based Lending, an alternative to bank loans

Where Did This Money Come From?

When you first start looking for funding as a small business owner, the lack of options can surprising. After all, when you first opened your business, especially if it was a franchise, you probably had lenders ready to hand you funds at the drop of a hat. Then, you discovered the world of alternative financing! Suddenly what was amazingly underwhelming became surprisingly overwhelming. You began hearing terms like factoring, working capital advance, or equipment leasing.Perhaps, you also heard Asset-based lending. Asset-based lending, or ABL, is a line of credit given to a business which is secured by a specific set of collateral.

Most Loans are Secured, Right?

ABL seems like a bit of a misnomer since, with very few exceptions, small business loans are collateralized. The difference is that with an asset-based line, the lender is looking at the realizable value of the liquidation of the assets used to secure the loan. Interestingly, unsecured loans often have a lien across the entire business, whereas asset-based lines typically are secured by the specific assets agreed upon.

Should You Use ABL?

Different types of lending work for different businesses. ABL funding is no different: it works for businesses that have fairly significant equity in hard assets, and either are not quite at the point of bank financing, have exhausted their bank lines, or desire to hold their bank lines open for day-to-day capital needs. Very young, start-up businesses typically will not be able to secure an ABL line. In the franchising space, ABL is typically going to be more geared towards the franchisor than the franchisee. If you are business with credit history, hard assets such as inventory, equipment, or real estate, and you have the opportunity to use new funds to grow your business, ABL should definitely be something you’re considering.

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