Asset-Based Loans for Real Estate Investors | SMB Compass
Ezra Cabrera | June 24, 2019
Commercial real estate investors looking to grow their business often have to purchase new properties to generate revenue. Unfortunately, buying real estate is expensive and not a lot of businesses qualify for traditional bank loans. This leaves investors looking for other viable financing options in order to fund their businesses. Investors who own properties often tap into asset based loans for real estate to finance their projects. Here’s how:
The Basics of Asset Based Loans for Real Estate
An asset-based loan is a form of business lending that uses collateral to secure the loan, rather than cash flow or credit. Other than the commercial properties you own, you can use a wide range of collateral to back your loan: inventory, accounts receivable, purchase orders, machinery and equipment, intellectual property, and marketable securities. It’s important to remember that other types of collateral hold more value than others. If you or your business own existing revenue-generating properties, you can also use those properties to secure an asset-based loan.
Benefits of Asset-Based Loans
An asset-based loan provides you with the funds you need for your commercial real estate transactions. Additionally, here are some of the benefits associated with asset-based loans:
1. Fast Funding
Whether you need to take advantage of a new business opportunity, or you need to pay for unexpected business expenses, an asset-based loan is ideal for you. The entire loan application typically takes 10 to 14 business days, but once you’ve been approved, your loan will be funded within 24 hours.
2. Easier to Qualify
Many investors prefer asset-based loans because almost every business can qualify. Potential lenders focus on your company’s profitability and financial statements, rather than your credit history. Many investors make use of their entire line-up of business assets, using them as collateral, while others may only select existing equipment or inventory.
3. Fewer Requirements Needed
Traditional business loans usually come with terms and conditions which can be restrictive for new businesses. However, an asset-based loan often has fewer requirements compared to other types. This enables investors to focus more on your business transactions instead of complying with the terms of a traditional loan. Potential lenders typically ask for the necessary financial information along with a detailed asset list.
4. Cash Flow Improvement
Almost every business has experienced cash flow issues at some point. Acquiring an asset-based loan enables you and your business to stay afloat during a non-peak season. The additional working capital can also help cover the costs of your daily business operations.
Additionally, an asset-based loan also offers financial stability when your company is growing faster than anticipated. For instance, If the need arises for you to hire more employees, buy more supplies, move into a larger office, or purchase new equipment, this type of loan will help bridge cash flow gaps.
5. Flexibility
Compared to other types of financing, asset-based loans offer great flexibility. Generally, you can use it for almost any type of expense as long as it’s for your business. The value of the loan depends on the value of your accounts receivable collateral. This means that the line can increase as your sales grow.
Once you’ve established a relationship with a lending company, you don’t have to go through the entire underwriting process again if you plan to reapply. This flexibility and convenience are perfect for rapidly growing companies that need additional funding.
6. Use Asset-Based Lending as a Stepping Stone
In most cases, companies that apply for asset-based loans are in the intermediate growth phase. This means that they have outgrown invoice factoring, but they are unable to qualify for more traditional loans.
By applying for an asset-based loan, you’ll be able to improve your track record with a lending company. Your credit rating will also improve, given that you may payments on time. Once you’ve established your credibility, you’ll increase your chances of qualifying for a less expensive loan.
7. More Cost-Effective
Asset-based loans are cost-effective, making them a viable financing option for business owners. Even though traditional loans typically charge lower fees, you’ll be able to save money by choosing a loan based on your collateral over other forms of financing. The annual percentage of asset-based lending depends on your business’ risk level and the credit offered to you.
Find Out More About Asset-Based Lending Today!
Asset-based loans for real estate investors can generate numerous questions, so it’s best to contact a financial expert if you have any questions, or if you want to uncover more about asset-based loans and how it fits into your business goals. They can give you the insights and tips that will reveal how you can maximize an asset-based loan.
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