Small business owners who are struggling with limited amounts of available cash should look at asset-based lending as an option. This type of lending is not as well known as other forms, but it could prove enormously helpful under certain conditions.
While asset-based lending/borrowing may be an atypical strategy for some entrepreneurs, considering a type of financial transaction like construction factoring should always be an option. A lack of flexibility could make the scenario of lacking cash even worse.
Small businesses have their ups and downs throughout the year. At times, cash flow can be very sparse. At other times, the business has more liquidity than ever anticipated. Then, there is that gray area known as the waiting period for receivables. By receivables, it is meant that bills or other invoices have been sent out and payment is expected. The amount of time the liquid cash is received could be, for example, in three weeks or so.
Under normal circumstances, this might not present much of a problem. However, current circumstances with the business have created a cash flow shortage. Hanging on for three weeks for the funds to come in is too long a time to wait and poses a number of serious problems. Thankfully, there is a way to address the issue. This is where asset-based lending comes into play.
The solution asset-based lending provides is a fairly simple and straight-forward one. A loan is taking out in anticipation of the payments due to the business. In a way, this type of loan is like a payday advance only it is the employer/business that is taking out the loan. Really, the loan is more akin to a cash advance since it is secured by the forthcoming payments. Often, this type of borrowing is closed when the borrower provides the lender with a pre-dated check designed to be cashed on the date all the cash deposits are in the account.
Procuring such a financial arrange should not be rushed into though. Even if the cash flow situation seems like a desperate one, look for the best provider that presents agreeable terms. There is no reason to pay excessive fees or interest rates. Also, be sure that the money you expect to come in is going to be received. Defaulting on payments is not exactly going to create a good situation.
If the asset-lending does end up working out, the business could find itself in a good position with disaster avoided.