Asset-Based Lending vs. Traditional Bank Financing

If you’re looking for options to expand your cash flow management, asset-based lending is worth considering as an overall short-term lending strategy. Also known in some circles as ledger credit, this hybrid form of financing considers the total balance of your inventory, assets, and liabilities, and extends you credit as is appropriate for your financial health and business holdings. This form of credit can be a little more expensive than traditional bank financing, but it is available to many companies when those forms of financing have already been maximized.

One reason that companies elect for lending based on their assets is to maintain constant access to a credit line that will automatically grow with them. Asset-based lending does this because your available credit is always linked to your current finances, including your current outstanding credit balance. Interest rates can be a little high compared to other forms of secured financing, but they are generally not as high as unsecured financing like credit cards tend to be. 

Many asset-based credit programs are competitive in pricing with business lines of credit. The difference is twofold. First, lines of credit do not automatically expand with your creditworthiness. You must request a line increase. Second, they are highly dependent on your credit score. If your company currently has too much unsecured debt already, bank financing programs that offer these credit lines will not extend them to you until that debt load decreases. By contrast, your asset-based lending programs will generally extend credit to anyone with the appropriate assets to secure the debt. Companies with better credit get more, but very few fail to qualify for at least a small credit line.

Under ideal conditions, when your company grows you will access a variety of credit solutions to balance your short and long-term needs. If you are currently finding that traditional bank financing is less accessible or less timely than you wish it would be, alternative credit options are probably a good fit for you right now. The important thing to remember about asset-based credit is that it can take some time to get established. The lender needs to assess the total balance of your assets, so if you need money quickly you might want to consider an option like factoring.

Once your credit line is up and running, it will be responsive and easy to access when you need it. The key is planning, because you don’t want to be waiting for credit approval when you need cash to keep your business operating. Apply now and have the credit when you need it.


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