How to make your business assets work for you when it comes to lending
When lending money to help further develop your business, using your company assets to support your lending might help you borrow more. Here’s how.
What are business assets and which ones can be used?
Business assets are resources that your company owns or borrows to help run things as smoothly as possible. To trade your assets for a loan, this needs to be something tangible such as heavy machinery, computers, or cash. You must also own the products or have permission from the company that lends you your supplies to use them as assets when taking out a loan.
Typically, you can split your assets up based on their convertibility into cash. These are known as ‘current’ and ‘fixed’ assets.
You can also group them into ‘tangible’ and ‘intangible’ assets. Tangible assets are physical, material assets, whereas intangible assets are resources that aren’t material but benefit the business, such as reputation or brand.
If you were looking to put your assets on the line to gain a bigger loan, you would most likely benefit from using:
- Tools and machinery
This is because these are the most tangible products, and the lender would find it easy to recoup their money by taking and selling on these assets if you were unable to pay them back.
Why are assets important to a business?
Assets can help a business generate revenue if they were to sell these products on, for example, in the form of stock. They can also increase a business’ value if their net worth is now much more due to having these assets within the company. Assets are also important when aiding the smooth running of your business – assets like machinery that can speed up processes that would have been done by hand are incredibly useful and save time and money in the long run.
What exactly is ‘asset-based lending’?
Asset-based lending means that companies can borrow money with a lender based on the liquidation value of their assets that they are willing to put forward. Businesses can offer their lender an inventory of stock and other assets that they would be willing to put forward should they not repay their loan, then the lender can decide how much to lend them.
What are the benefits of it?
Businesses with a high credit score can often borrow between 75% and 90% of the value of their assets, meaning that it’s a quick way to get some extra cash to make those much-needed adjustments to help your business expand and flourish.
Asset-based loans are often secured, so both parties know where they stand should something happen.
If you can repay your loan, you’ll be able to keep your assets and any profit you have made during this time. If you are unsure that you’ll be able to make the repayments, you should put forward assets that you won’t particularly miss just in case you end up losing machinery that could be detrimental to your business’ ways of working.