Sometimes an organization has a lot in assets, but needs capital in order to make progress. Fortunately, there are options for financing that capitalize on company assets in order to secure financing. In this way, an organization can continue to make progress toward goals and objectives without selling assets.
Asset-based lending is a way of getting financing based on assets within your organization. This financing uses assets as collateral rather than cash or credit. This can be a good solution for an organization that does not have a lot of cash, but has equipment paid in full that can be used as collateral. The value of the equipment, which serves as the asset, is used to secure the loan. The money received in this way is based on a number of factors, including the financial status of the organization and the value of the asset or assets. Typically, the loan is received as a percentage of the value of the asset.
Invoice factoring is another form of asset-based financing. However, in this model, the asset used as collateral is the invoices the company holds. Essentially, the company sells the accounts receivable invoices to the factoring company, which then provides financing based on the value of the accounts receivable. The factoring company then holds those invoices and receives payment for them from customers. Once payments are collected, the factoring company may send the remaining balance to the organization minus all necessary charges and fees.
When a company has assets but no capital, these asset-based lending options can be an effective solution. They use the value the company has in the assets to secure financing, allowing the organization access to money without requiring the sale of the assets. In this way, an organization can continue to make positive progress toward goals and be successful.