More and more businesses are popping up in every corner, but many have issues with sustainability, growing too fast, or don’t have a desirable credit rating. That’s why traditional banks often turn them down for loans. Besides that, lenders are more careful when taking risks due to financial crises.
Unfortunately, businesses with different lines of credit can find it challenging to get funds from banks. This is because banks won’t want you to have extra credit beyond your limit, hindering your business’s financial growth.
So if you’re short in working capital and your business needs financial assistance, consider financing options like asset-based lending (ABL), which is a viable option if you’re strapped for cash.
In this article, we’ll dig deeper into the difference between traditional bank lending and asset-based lending and find out which option will work best for you. Let’s take a look!
What are the Biggest Differences Between Asset-Based Lending and Traditional Lending?
Asset-based lending gives you a more flexible approach to financing a business that wants to expand and grow, which is all based on the collateral you put up for your loan. On the other hand, traditional bank lending offers you money to borrow based on your business’s future cash flow.
Generally, ABL advance rates range from 70 percent to 90 percent, and you submit your payment to the lender when funds are collected. After that, the lender will provide you with a balance, exclusive of its fees for the loan and for managing the process.
An asset-based loan follows a revolving line of credit approach that refreshes every time you pay collateral. With that, r