Asset Based Lending - An Old Lending Method Returns As a New Niche

Asset Based Lending - An Old Lending Method Returns As a New Niche

Small businesses have not been the only businesses that have been affected by the recession and stricter lending standards however. Many large scale companies are getting rejecting for unsecured loans that they would have qualified for five to ten years ago.

After the markets started crashing a few years ago, most people thought that asset based lending and subprime loan companies would be put out of business forever. While subprime mortgage lending took a big hit, it has been found out that asset based lending for businesses is actually making a big comeback. With credit companies refusing to issue loans to companies that they may have leant to prior to the recession, businesses have had to find a way to obtain the financing that they need. Asset based lending companies have stepped in full force and are quickly growing in popularity.

Asset loans use a company's liquid assets to determine whether or not they are going to lend to them rather than using a credit score. Credit scores are still obtained but they are not the ultimate and definitive deciding factor with asset based lending. Liquid assets can be defined as the company's equipment, accounts receivable, restaurant assets and in some cases even real estate if it is owned by the business. The business enters into a contract that uses their assets as collateral in the event that they ever default on the loan. What used to be considered subprime lending is now becoming a very popular and widely used method of obtaining loans for business owners.

There are a few downfalls to pass around to asset based lending as well. The first major downfall is that if the business defaulted on the loan, then the lender has the right to seize physical assets and future payments that are due to the company depending on what asset is being held in collateral. Second, the interest rates are often above 10%, which is typically higher than standard lending rates. And last, the lending limits may be lower than traditional lending, as most asset based lending companies will only lend an average of 60% of the value of physical and hard assets and 80% of the value of future accounts receivables.

The lending market is still not fully recovered from the economic crash or the recession. Due to this, the trend in asset based lending may continue to rise and thrive over the next few years. For more information on asset based lending for small businesses, see http://www.theinternettimemachine.com.

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