Asset-based lending provides small- to medium-size companies a chance to obtain funds for their cashflow requirements, just when they need it most. Since the loan approvals are fast, it becomes an immediate solution for them. These are for instances wherein the companies need to have the outright cash to buy a new equipment or repair an old one. The time element involved is one of the main reasons Why asset based lending works for many companies.
The good thing about asset-based lending and Why asset based lending works, is that it can be customized, depending on the needs of the borrower. A line of credit is established and the company draws the funds only when they need it. Since they only draw the funds as needed, the interest is therefore computed based on what is drawn. Thus, interest payments incurred are incremental.
Conversely, since the loans are backed with assets as collaterals, the lenders’ exposure is not considered to be as high risk as a traditional loan.
Lately, there had been big companies that looked to asset-based loans for their growth and acquisition needs.
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