Asset Based Lending Vs. Equity- When Is It Better To Borrow Or Dilute?

One of the biggest challenges of a rapidly growing business is obtaining working capital

. Business owners seek a cash flow solution that is both beneficial and cost-effective. At times, it is difficult to ascertain which financing option is better for a particular companys financial situation. When considering both equity financing and asset based lending, when is it better to borrow verses diluting? Here are some facts to consider:

Equity Financing

Equity financing is an exchange of money from a lender for a piece of ownership in the business. Although a business may become more credible with the help of investors, the business owner loses complete control and autonomy because investors have a say in decisions that are made.

Leaning too much on investors may also indicate to potential funders that you are not willing to take the necessary personal risks, which could signify a lack of belief in your own business venture. However, it is better to dilute for venture capitalists or when a business is attempting to grow significantly beyond its ability to generate short-term assets that can be borrowed upon.

Asset based lending

Asset based lending is a less expensive, less risky alternative to selling part of a company. It is also a solid way to finance growth when receivables grow faster than cash flow. Asset based lending also allows for more flexibility, as a company is not obligated to use the funds if they are not needed.

With asset based lending, the business owner retains maximum control over the business. The lender does not have any liberties or ownership over the business. The relationship continues as long as the money is owed and once it is paid back, the business owners relationship with the lender ends.

When considering financing options, it is best to consider the companys long-term goals and determine how much control the business owner wants over the business. If the owner believes in the business idea and want to see it through, diluting should be the lesser option.

For more information on exploring asset based lending and retaining control over the direction of your business venture, seek financial counsel from Far West Capital. Far West Capital provides financing to growth-oriented businesses by leveraging a businesss hard and soft assets. Far West Capital helps businesses grow through alternative financing solutions such as asset based lending and invoice factoring services. To increase your cash flow today, visit Far West Capital at www.farwestcap.com.

by: Elizabeth.Ruda

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