Asset heavy businesses are traditionally hard to break into and even tougher to scale. A large reason for this is the lack of financing for asset purchasing. Business owners can utilize traditional bank loans, SBA loans or private money loans to finance their equipment or asset purchase.
Asset loans can also be utilized to raise capital for business operations, acquisitions or more by using an asset that is owned outright as collateral for the loan.
One of the primary benefits of using a private money lender as opposed to a big bank is speed and flexibility. Many banks will take upwards of 60 days to get a loan approved by their credit committee. SBA backed loans take close to 90 days in many occasions and while they offer favorable terms, they are not flexible products.
Private money lenders will typically lend money to acquire an asset OR lend money for a different purpose and use the asset as collateral. This is ideal for companies that are in a tight cash flow situation but have some business assets that they own outright.
The lender will evaluate the asset and right a check to the owner as a percentage of the assets fair market value. Typically, asset based lenders will loan somewhere between 60%-80% of the assets fair market value.
Asset based lenders are accustomed to lending against a number of different types of assets. However, they want to know that if the loan isn’t repaid, they will still be able to get their money back by liquidating the asset. This is why many lenders will only operate in markets that have a liquid secondary market for assets and the assets can be easilty appraised.
Industries that typically utilize asset based loans include: transportation (usually trucking), manufacturing and asset heavy construction.
At mid-market list, we have compiled a free database where you will find an expansive list of asset based lenders. If you have specific criteria that you are looking for, complete the form above and we’ll connect you with the right lender for your specific situation. If you haven’t yet, have a look at our article on using commercial loan brokers and accounts receivable lenders.
Lenders will only lend money against an asset that can be liquidated to help them recover their investment. In addition to business equipment, accounts receivable and inventory can also be financed.
Because these lenders need to make sure they can recover all of their principal on a loan, they will only lend a percentage of the assets true value. If a piece of machinery or hard equipment can be liquidated at auction for $40,000, the most an equipment lender will give you is $25,000 – $30,000. The same is true for accounts receivable financing and inventory financing.