How is Asset-Based Lending Better than Cash-Based Lending? A Complete Guide for Investors

 

Calculating business finances

Businesses that need to cover day-to-day expenses but have limited finances consider acquiring a loan. Cash flow lending is typically used to pay rent, inventory, and payroll and is paid off through the incoming cash flow of your business.

On the other hand, asset-based lending is secured by assets, including equipment, real estate, or inventory. This guide will further discuss the difference between both and why asset-based lending is a better option for investors.


Why Choose Asset-Based Lending

Asset-based loans are suitable for companies that don't have significant potential for cash flow. Businesses operating with tight margins and extensive balance sheets also opt for asset-based financing. Assets that are commonly used as collateral in this type of loan include company inventory, physical commodities, machinery, vehicles, as well as real estate properties and land. Moreover, asset-based loans provide the company with the required capital to address its lack of growth.


Limitations of Cash Flow Lending

A major reason why asset-based lending is better than cash-flow lending is that cash-flow loans are associated with penalties and high fees for late payments. Since you won't need assets to secure this loan, lenders may keep possession of your entire business based on the loan agreement.

Some lenders require automatic payments to cover the loan. But for businesses with a fluctuating cash flow, this could mean insufficient money to make the payment. 

 

A person holding a document

Asset-Based Lending at GCP Fund

According to private lenders at Global Capital Partners Fund, asset-based financing is the most suitable loan option for expanding businesses looking to acquire working capital. The lending company has an international team of financing partners to help businesses grow. Their financing solutions include mezzanine financing, bridge loans, construction financing, and more. Contact them today for details.

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