For many businesses, asset-based loans can be the perfect solution when they’re short on working capital but don’t currently qualify for a traditional loan. The key is finding the right funding partner that is willing to learn about your business, understand your challenges, and then work with you to find the optimal solution that will offer the most benefits to your growing business.
Finding that right partner is a vital part of the funding process, especially when you rely on their expertise, products, services and connections. Nothing can roadblock a company’s operations like lack of working capital. With asset-based loans, in particular, you’ll be accessing larger amounts of capital while agreeing on terms that maximize the value of your available assets. Obviously, working with a trusted partner is crucial.
Background: Who should consider an asset-based loan?
Asset-based loans (ABL) allow companies to leverage their accounts receivable, inventory, and in some cases, equipment and real estate to access working capital. Qualifying companies generally have a strong credit rating and maintain comprehensive financial reporting with strong internal controls — tending to be established businesses with a solid track record.
With many funding options in the market, how can you tell which one is right for your business? Below are three main factors to consider.
1. Find a like-minded partner
Your ABL funding expert should feel like a genuine partner in your business. They’ll need to understand your business model, industry challenges, opportunities, and any unique processes you have in place. A partner with an entrepreneurial mindset and personal experience as a business owner/operator could also add to their understanding of where you’re coming from and where you are going.
Also, look for funding partners who have cut their own red tape and complicated approval processes. These can slow down your ability to access cash flow when it’s needed — but be careful to ensure they are still credible and still have a strong reputation in the market.
Ultimately, a like-minded partner will work with you in the long-term and should go the extra mile to create more availability against eligible collateral. That means your assets will provide the biggest return for working capital.
2. Look for value beyond the “money”
Your ABL partner should be more than just a person that writes you a check.
Factor in various aspects of value beyond the capital they provide. With ABL, rates are generally competitive but on par with different vendors, so it’s important to assess other criteria that can show who you’re dealing with.
Look for service partners who will provide access to their referral networks that can extend your business relationships. This longer-term value is often overlooked but can be a strategic benefit. A trusted partner will also provide access to advice related to the struggles of a growing business, and they’ll be able to offer strategic business advice and beneficial tools as you grow the company. Their network along with access to like-minded entrepreneurs are invaluable to a business facing the challenges of growth and emergence.
3. Work with a person, not just a piece of software
Technology is an important aspect of modern business, but when it comes to a funding relationship, you should be working with a real person.
In particular, find local representation and experts who will be responsive when you have questions or challenges. Look for an organization with strong underwriting, risk assessment and good relationships within the industry. Your partner should also be able to work with you to offer creative solutions to your business funding needs.
With ABL, your company is going to be relying on the funding partner for large amounts of working capital, and this shouldn’t be trusted to a piece of software or website touting fast-funding without strategic consultation.