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5 things to consider before securing an asset-based loan



Your business needs money to survive and thrive, but sometimes cash flow is tight and traditional loans aren’t an option. If this is true for your business, an asset-based loan, also called asset-based financing or asset-based lending, might be the answer for you. An asset-based loan uses your business assets as secured collateral, giving you leverage to borrow extra money when you need it.

Important factors to consider

Before you decide to pursue asset-based financing, consider these key factors.

1. The best time to secure an asset-based loan

First, opt for an asset-based loan when it will best serve your business. This type of loan can help you through a variety of business challenges, including the need for emergency cash flow or funds to expand operations. Timing will ultimately depend on your business plan and the needs around it. Generally, asset-based financing works best for businesses with many assets, including equipment, inventory, machinery, and/or accounts receivable.

2.  Choosing the right lending source

Choosing a lender for your asset-based loan means asking the right questions. Can you secure the money you need? How quickly can you access the funds? What interest rates will you pay? The list goes on. Even if you have an existing relationship with your lender, it is important to explore alternative financing when considering an asset-based loan.

Meridian has partnered with Accord Financial to bring dynamic financing options to our business Members. Our Business Advisors can help you explore the benefits of an asset-based loan.

3. The number and type of assets allowed

In many cases, you can leverage more than one asset as collateral for your asset-based loan. The more eligible assets you have, the more you can borrow against them. Most lenders will consider accounts receivable, inventory, machinery, and equipment as eligible assets; some lenders will also consider real estate.

Our Business Advisors can help you explore the assets that can be used in your asset-based loan.

4. Determining the amount of the loan

Financers follow rules and formulas to determine how much they will loan a business. Typically, it’s between 70% to 90% of the value of your receivables. This will depend on the lender and the quality of receivables. For your other tangible assets (inventory, equipment, etc.), lending amounts will vary from lender to lender depending on the quality of the asset, the percentage they are comfortable lending against, and liquidation type/formula. If you are looking for a specific amount, alternative financing experts can provide flexible solutions to reach your goal amount.

5. There’s a cost involved

As with other types of loans, asset-based financing isn’t free. Overall, the amount you’ll pay depends on the loan amount and your interest rate.  When making comparisons between lenders, make sure you fully understand the associated cost of an asset-based loan and the value of it.

Multiple advantages

While there are some limitations to an asset-based loan, you’ll likely find more benefits. For example, the turnaround time from application to funding is much faster than a conventional loan. If you have qualifying assets and work with a reputable lender, asset-based financing is an easy process.

It is important to work with a partner you trust. Don’t overlook the advantages of securing an asset-based loan through a respected financing firm.

Meridian has partnered with Accord Financial, one of North America’s most dynamic finance companies, to bring a wide range of financing options to our business Members. A Meridian Business Advisor can speak in-depth about the benefits of an asset-based loan.

If you’re considering an asset-based loan for your business, talk to a Meridian Business Advisor.

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Learn more about asset-based lending with Accord

Meridian Credit Union communications are intended for informational purposes only and do not constitute financial advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

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