Traditional lenders such as banks and credit unions have tough standards that must be satisfied by borrowers before they will grant a loan. Many companies who need money right away would have to undergo a particularly long process but can still be rejected in the end
Businesses that do not meet the standards required by banks often secure asset-based loans. These loans usually take the form of revolving lines of credit based on the value of the borrower’s assets. The said assets are generally the accounts receivable, inventory or equipment of the company.
A company that wants to acquire or merge with another business can make use of an ABL Facility to keep the stock price at the same or above the present level. Doing so will prevent the stocks of the company to depreciate below pre-merger value and can minimize the losses of existing customers.
If you have a business that relies on seasonal sales, you will need a steady cash flow during the off-season. An asset-based loan can help you pay utility bills and vendors, cover your employees’ wages, and allow you to make improvements and repairs to your business. When the busy season comes in, you can then pay off the loan and still keep the line of credit open.
Asset-based loans are often secured for a leverage buyout. In leverage buyout, the assets of the business you are looking to acquire will be used as collateral to secure and pay off the asset-based loan, thereby helping you avoid using your own assets as collateral.
Companies that want to restructure but don’t have the needed capital can avail of asset-based loans. It can help them remain competitive and avoid big losses during the restructuring. Company restructuring is can be necessary to keep up with the changing business market.