Asset-Based Lending Vs. Cash Flow-Based Lending

 

A woman signing a loan contract

When it comes to scaling and sustaining operations, businesses require viable financing options for borrowed capital. For small and medium-sized businesses, short-term financing is essential so they can deal handle finances and prepare for long-term growth.

Depending on a business’s needs, there are two different lending options available, i.e. asset-based and cash flow-based lending. To learn more about them, continue reading this article. For asset-based lending in New York, visit GCP Fund.

Describing the Two Lending Styles….

In simple words, asset-based lending involves loans based on a business’s balance sheet assets. These assets can be inventory, accounts receivable, equipment, and machinery. On the other hand, businesses can also borrow capital using cash flow-based loans, which are provided against future estimated cash flows.

Here are some differences between these two lending options.

Focus

A huge difference between asset-based and cash flow-based lending is what the lender focuses on. With cash flow-based loans, lenders will focus on a company’s projected future cash flows, whereas for asset-based loans, the primary focus is on the business’s balance sheet assets.

Collateral

For asset-based lending, the collateral would be a company’s current assets—or anything else which the lenders seem fit. These assets will be utilized by the team of lenders in the future if the borrower defaults. 

Bank notes

On the contrary, no collateral is attached to a cash flow-based loan. This type of lending completely depends on a company’s ability to maintain its business operations and generate enough income in the future. A borrower’s credit score or rating also plays a huge role when the lender decides to grant them the loan.

Suitability

Loans often have to be tailored according to a company’s requirements and criteria. This depends on the business model of the company. If a business has non-liquid assets or working capital bound by these assets, it won’t be able to produce enough cash flows in the future. Hence, lenders may not grant them a cash flow-based loan.

Similarly, if a company enjoys huge profit margins but doesn’t have enough assets to offer as asset-based lending collateral, it will be better suited for a cash flow-based loan.

How GCP Fund Can Help

Whether you’re exploring various financing options for your business or think your business could benefit from asset-based lending, Global Capital Partners Fund’s team in New York can help you out. They also offer short-term bridge financing and joint-venture financing solutions.

Get in touch with them to learn more about how they can help your business.

Comments

Post a Comment

Popular posts from this blog

3 Things To Consider When Applying For Private Lending

Image
  Whether you want to  invest in commercial real estate  or acquire a business, sorting out a suitable funding option is a must. Many business owners consider private lending to finance various projects. But with several money lenders in the market, it can be difficult to identify the best deal. Hence, we have compiled a list of the top three things to consider before applying for private lending. Global Capital Partners Fund is a reputable private lending organization that offers various financial solutions to businesses in Tenessee , Washington , Virginia , and many other states in America. The company is popular for asset-based lending , bridge financing , mortgage lending , and many other affordable financing options. Make sure to keep these top three things in mind while applying for private lending. 1.   Know The Interest Fees And Rate Private lenders typically charge higher interest rates than traditional lenders such as banks, so it's important to carefully r...
Read more

How Can Bridge Financing Help Your Business in Annapolis, MD?

Image
  A bridge loan  is a short-term financing option that helps businesses meet their immediate obligations before they secure a long-term finance facility. It is widely used by companies in the commercial real estate sector, where they need quick cash to take advantage of a lucrative real estate investment opportunity. Here's how you can use bridge loan financing  as a short-term financing solution for your business in Annapolis, MD.   Purchase Real Estate If you're looking to grow your business and want to purchase a new facility, bridge loan financing can provide you with the necessary financial impetus to help you with your purchase. Conventional financial institutions and banks have strict lending requirements for funding commercial real estate. They will conduct a comprehensive review of your financials, conduct property appraisals and inspections, and then provide you with approval.    Time is of the essence when securing a viable commercial space, and...
Read more

5 Real Estate Investment Challenges and How to Deal with them

Image
  Real estate investment involves the process of buying a property and then renting it out to generate income. The major concern during this process is the amount of money required for a particular property. This guide will discuss common challenges investors face in the real estate industry and how a lending company can help. Market Volatility A challenge that real estate investors commonly face is market volatility. Despite the tremendous real estate opportunities , uncertainty in the market due to multiple reasons makes the situation difficult for investors. However, this issue can be addressed depending on the investor’s strategy. For instance, they can opt for a stable investment opportunity rather than jumping into uncertain situations. Property Valuation Decision analytics before investing in real estate offers a comprehensive report, answering the investor’s queries and analyzing the potential risks. Poor property valuation prevents investors from ...
Read more