Businesses without strong credit histories, such as small businesses and startup companies, have limited options when it comes to quickly generating the funds needed to maintain business operations. Bank financed loans are difficult to obtain, most investors require a guaranteed piece of the pie, and making money without spending money is often not an option. Fortunately, using the "take what you've got to get what you want approach", asset-based financing generates the funds a company needs in the short term.

Fast-growing companies that need money and have assets, such as property or inventory, can take advantage of asset-based financing to instantly meet their short-term cash needs. With the asset-based financing method, the company's assets are used to secure the loan from a bank or a commercial finance company, which then seizes the assets if the borrower defaults on the loan. Some companies use business property while others use their inventories or accounts receivables. If an inventory is used as the asset, the lender may require the borrower to use an approved warehouse where inventories can be stored and monitored by the lender. Akin to the "equity loan" concept that has become so common today, asset-based financing is becoming the rave for businesses, especially if their credit is less than perfect.

Asset based financing follows the general guidelines used in most secured, conventional loans. However, the interest and fees associated with the loans are typically higher than traditional bank loans. In recent years an increase in the number of asset-based financing companies has caused the overall rates to fall, which makes them even more desirable.

Advantages of Asset-Based Financing

From a business perspective, the main advantages of the asset-based financing method is the speed at which large amounts of cash can be obtained, and the fact that almost any asset owned by the company will suffice as collateral. Those with less than perfect credit also benefit from not having their credit worthiness based solely on their credit history.

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