Asset-based financing goes by many different names: hard money loans, bridge loans, ABL financing and similar names. All of these loans work in the same way, using collateral to help your company qualify for working capital.
ABL financing is most effective when lenders customize it to the needs of your business. They should work closely with you to help you determine the loan amount, terms and conditions that are most comfortable for your finances. This guide can help you know what to look for.
What Is Collateral?
Collateral is used in many types of loans. This concept refers to a business asset that helps provide a guarantee of payment. You’re essentially promising the lender that you plan on repaying the loan, providing an asset to back up your commitment.
Bank mortgages and lines of credit frequently ask for collateral. All ABL financing uses assets; however, there’s a difference in the type of assets that qualify with this type of loan.
Conventional loans usually require you to utilize assets that you already own, such as equipment or property. ABL financing, on the other hand, often allows you to put the item you want to purchase as collateral for the funds. For example, if you want to purchase heavy machinery, you could use the item as collateral for the loan used to purchase it.
How Much Does ABL Financing Cost?
The price of asset-based financing varies by lender and by the size of the loan you need. There is generally a due diligence fee required for underwriting in addition to the interest on the loan. ABL financing interest rates are higher than conventional mortgages but often less than those associated with credit cards.
The great thing about ABL financing provided by alternative lenders is that you can negotiate many of the terms so they fit your business needs more closely. It’s possible to change the down payment amount, adjust your monthly payments or adopt a seasonal payment schedule as required. ABL loans can also provide additional capital for remodeling costs.
How Can You Qualify?
A common question is if small business owners can qualify for ABL lending. The answer is usually yes, even if the business has less-than-ideal credit. It’s important to have relatively stable revenue and good capital management skills, but perfect records and credit scores aren’t a requirement.
Bridge loan providers are your partners in business. They can help you find great solutions, such as changing the way you make payments.