Every small business needs cash to grow. When your small business experiences a lag between cash coming in and cash going out, you may be able to use collateral to obtain the necessary funds to cover short-term needs, such as paying employees and purchasing raw materials.
Lenders like Summit Financial Resources provide working capital financing that helps ensure a steady stream of cash flow into your small business. Financing can take the form of factoring, asset-based loans, inventory lending, or equipment term loans for companies with qualifying assets that can be used as collateral.
Making money available to small business owners often involves risk. In order to gain more security, lenders will require borrowers to pledge assets as collateral. Before you explore options with potential lenders, it’s important to understand the basics of asset-based loan programs and the types of assets you can use to secure the funds you need.
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What is Asset-Based Lending?
In essence, asset-based lending allows businesses to use the value of one or more of their current assets as collateral on a business loan. Collateral is an additional form of security that can be used to assure a lender that you have a second source of loan repayment.
The U.S. Small Business Administration’s (SBA) definition of collateral is a good guide for those seeking financing. The SBA considers assets such as “equipment, buildings, accounts receivable, and (in some cases) inventory” as possible sources of repayment if they can be sold for cash. In addition to business assets, collateral can also consist of “personal assets that remain outside the business.”
Asset-based loans are often designed to provide specialized short-term financing. This type of program empowers companies such as manufacturers, wholesale distributors, and professional services firms to maximize the value of their assets to help fund fluctuations in cash flow or take advantage of immediate business opportunities.
Small Business Assets that Qualify for Collateral
Fixed and liquid assets are typically eligible collateral for asset-based lending. A liquid asset often changes in quantity or value, such as inventory or outstanding customer invoices. Fixed assets like heavy machinery retain value for a period of time.
Traditional lenders, like banks, typically look for secure assets, like real estate or equipment, as collateral. Depending on the lender, other items of value may be considered which can be sold to satisfy a borrower’s debt in the event they default.
Once your proposed collateral has been accepted, the lender will determine the loan-to-value ratio based on the nature of the asset. Individual lenders consider the loan-to-value ratio differently, so you will need to understand how a prospective lender intends to set that value. Lenders may also consider other metrics such as cash flow, financial conditions, and company history.
Flexible Financing Options for Growing Businesses
Summit Financial Resources specializes in lending programs designed to give small businesses like yours the flexibility to keep your company growing. We offer a variety of financing options for situations where a traditional loan may be undesirable or unattainable. Our programs require tangible assets as collateral, including product inventory, accounts receivable, and high-quality balance sheet items such as machinery and equipment.
Many small business owners do not realize that their outstanding invoices are an asset. Your receivables are more than a line item on a balance sheet. Invoice factoring is a type of accounts receivable financing that harnesses the latent cash in your unpaid invoices to help resolve short-term cash flow issues.
At Summit Financial Resources, we finance the gap between when your products are delivered and when you receive payment. The factoring process is simple: we give you a line of credit using your outstanding invoices as collateral, and your loan is repaid as your clients pay those invoices. We can loan up to 90% against your invoices, allowing you to stabilize your cash flow and cover the costs of day-to-day operations or unexpected challenges.
Inventory Financing Add-On Program
In addition to your outstanding accounts receivable, Summit Financial Resources can consider inventory as collateral. With our inventory financing add-on program, we provide a line of credit based on your physical inventory in addition to your accounts receivable. You pay it back when the inventory is sold through our invoice factoring program. Combining both products allows you to use your company’s assets to access significant additional capital.
Keep in mind that inventory finance companies want to be confident that your stock is valuable enough to serve as viable collateral. You must be able to show that existing inventory sells quickly and your products have a history of steady turnover. Make sure your assets are well maintained; lenders typically will not be inclined to take a risk on damaged or outdated products that have been sitting on the shelf.
Equipment Term Loans
Summit Financial Resources views your equipment as an asset we can loan against. As an add-on product to an asset-based loan or invoice factoring program, a term loan can augment your existing working capital line of credit. Our term loan amortization is up to 36 months, allowing you to finance your short-term needs and make the investments necessary to keep your business growing.
Any equipment you use to run your business may be used as collateral. Even small tools like drill presses, hand drills, and saws can be considered; each item may not be worth much on its own, but collectively their value adds up.
Asset-based lending can be a great way to get out of a cash crunch quickly and increase company revenue. If you have been considering using your assets to secure funding for your business, we may be able to help. Our approach to financing enables us to look beyond your company’s current circumstances, find value in the investments you make in the course of doing business, and bank on your success.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.