Archives for June 2021

What Is Asset-Based Lending?

June 22, 2021 by Peter Spoleti / Vertex Markets Inc. Leave a Comment

Author: Joe Camberato / Last Updated on April 29, 2021

Asset-based lending is a form of business financing that’s secured by collateral. Collateral is any asset a business owns that is of value and can be used to ensure repayment.

Businesses can use real estate, accounts receivables, inventory, equipment, or even purchase orders to secure asset-based lending. You may even be able to combine multiple different assets together.

Asset-based lending can help small businesses access the financing they need to cover cash flow gaps and pursue growth opportunities. Asset-based financing can take the form of a business loan or line of credit. It’s an incredibly fast lending solution that can be particularly helpful for young businesses with little history or low credit scores.

We’ll go into all the ins and outs of asset-based lending to help you determine whether this financing solution is a good fit for your small business.

Which Assets Can You Use as Collateral?

Many business owners assume asset-based lenders will only accept real estate as a legitimate form of collateral. It’s true that real estate is a common type of collateral, but you have the freedom to use different types of business assets as well.

Asset-based financing is inherently flexible and almost any valuable asset your own can be used. You can also combine different assets and bundle them together to access a greater borrowing base.

Just know that liquidity is key when it comes to asset-based lending. Lenders want to know that it will be easy to exchange your resources for cash in the event you default on your payments.

Here are some of the most common types of collateral used to secure asset-based lending.

Accounts Receivables and Outstanding Invoices

Many businesses experience significant time lags between invoices and payments. This is especially true for players in the construction, manufacturing, and transportation industries. If your business has a large sum of cash tied up in unpaid invoices, you may be able to use them as collateral for asset-based lending.

Inventory
Many retail shops, eCommerce stores, wholesale companies, and other product-based businesses will use their excess inventory to secure asset-based financing. Even though most lenders won’t grant you the full retail value, it’ll nonetheless improve your borrowing base.

Purchase Orders
Purchase orde s r promise sellers a certain amount of products at a set price. Many different businesses have been able to successfully put up their outstanding purchase orders as collateral for asset-based lending. This practice is especially common for retailers, distributors, and wholesalers.

Equipment
Any expensive equipment your business owns can be used to secure asset-based financing. This includes heavy machinery, technology, or transportation vehicles. How new your model is and how much depreciation it has gone through will determine the amount of working capital you’ll be able to access.

Real Estate
Real estate tends to be expensive and holds value well over time, which may help you secure a large amount of funding. Still, some lenders might not prefer property because it isn’t easily liquidated.

Using real estate as collateral can also bring about significant risks. If you’re unable to make payments on your asset-based line of credit or loan, you’ll have to forfeit your property.

Understanding the Goal of Asset Based Lending

Simply put, the goal of asset-based lending is to help your business access additional working capital quickly. Through either an asset-based loan or line of credit, you’ll be able to cover cash flow gaps, invest in new equipment, pursue opportunities, hire more staff, fulfill additional orders, and much more.

Many small business owners will seek out asset-based lending during seasonal slow periods or if clients are late with payments. You can also use an asset-based line of credit as an emergency fund, drawing upon it when expenses come up and making payments only on what you borrow.

It’s generally easier to get approved for asset-based lending than it is for other financing solutions. This is especially true if your business is fairly new, doesn’t have a lot of history, or lacks excellent credit.

Lenders tend to view asset-based financing as low-risk, which simplifies the approval process and can get you the financing you need remarkably fast.

Asset Based Lending Amount: How Much Can You Qualify For?

The amount of working capital you’ll be able to access through asset-based lending will depend on the type of collateral you provide.

Assets that have greater value and more liquidity, such as accounts receivables or purchase orders, are seen as less risky in the eyes of lenders and can help you secure a larger funding amount.

Most asset-based lenders will be willing to grant you 50% to 95% of your collateral’s total value.

Your time in business and credit score won’t be a major focus on your asset-based lending application, but performing well in these areas can help you secure more favorable terms.

How Asset Based Financing Can Help Your Small Business

Asset-based financing is a great way for small businesses to get their hands on additional cash. It’s flexible, relatively easier to get approved for, and can significantly improve cash flow shortages and cover working capital needs.

Many young businesses that haven’t been able to qualify for other forms of financing may be able to use their accounts receivables, unpaid invoices, or inventory as collateral for an asset-based loan or line of credit.

Even more mature businesses with a solid history and credit report can benefit from asset-based financing. By putting up collateral, you’ll be seen as less risky to lenders. As a result, you’ll be more likely to secure a lower interest rate and better terms.

Explore Asset-Based Lending Solutions

Ready to learn more about asset-based lending? At National, we help small businesses secure financing based on their own individualized terms.

Our Business Financing Advisors can walk you through the asset-based lending process and provide insight into how much financing you could qualify for. You can also explore different business loans or lines of credit and select the best choice for your business.

The best part? You could receive financing in as fast as 24 hours after approval. Fill out the 60-second application to get started!

National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

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Business Line of Credit: How It Works

June 7, 2021 by Peter Spoleti / Vertex Markets Inc. Leave a Comment

Author: Joe Camberato:

Last Updated on May 13, 2021

As a small business owner, you have many different options when it comes to financing. If you’re looking for a flexible solution that’ll help you manage cash flow disruptions, unanticipated expenses, or pursue new growth opportunities, you’ll want to consider a business line of credit. A business line of credit is a type of revolving loan that gives you access to a fixed amount of capital – aka your credit limit. It works similarly to a credit card but comes with lower interest rates and larger funding amounts.

How does a business line of credit work?

A business line of credit provides you with a reservoir of funds you can draw from as you need. You’ll be able to borrow money up until your credit limit, and only pay interest on what you’ve borrowed. As you repay, you’ll be able to draw on those funds again, up until your credit limit.

A business line of credit is distinctively different from a small business loan, which provides you with a lump sum of capital you’ll need to repay over a fixed amount of time.

Business lines of credit don’t come with fixed-payment terms. Your payments will depend on how much of your credit limit you’ve borrowed and your lender’s preferred payment schedule – which is typically weekly or monthly.

Business line of credit borrowing limits typically cap at $250,000 – which is smaller than business loan limits.

A business line of credit is one of the most flexible forms of financing around. Business owners have considerable autonomy over how they can spend their funds.

Many business owners will use a line of credit as an emergency fund, to purchase new inventory, hire new staff, invest in marketing campaigns, or cover other ongoing expenses as well as lump-sum purchases.

How do I qualify for a business line of credit?

Business line of credit requirements will vary according to different lenders. Most traditional lenders, like banks, emphasize revenue, business history, and credit score.

You’ll most likely be asked to provide numerous business financials, including personal and business tax returns, bank statements, profit-and-loss statements, balance sheets, and other financial statements.

Other types of lenders, especially online banks or fintech companies, tend to be more lenient. They tend to value revenue and your business’s potential for growth, over credit scores and history.

For example, National is an online marketplace featuring a diverse platform of lenders. At a minimum, you’ll need to have at least 3 months of business history and $120K in annual revenue to qualify. Plus, there are financing options for a wide range of credit scores.

If you’re looking to secure a larger borrowing limit or qualify for better interest rates, it may be helpful to put up collateral in exchange for financing.

Secured vs. unsecured business line of credit: What’s the difference?

A secured business line of credit is where you put up collateral, such as inventory, property, or accounts receivables, in exchange for financing.

An unsecured business line of credit doesn’t require any collateral or assets. Instead, lenders will look at your business financials and other factors.

Some lenders, such as banks, may require collateral if you’re seeking a large amount of financing, or if you’re lacking in qualifications.

Lenders view secured business lines of credit as less risky than unsecured lines of credit. The reason behind this is simple – if you fail to pay back your secured line of credit, lenders can seize your assets.

If you agree to collateral or a lien, your assets are at potential risk. This becomes especially dangerous if you’ve agreed to a personal guarantee, which would allow lenders to go after your personal property, such as your home, if you can’t make payments.

Not all lenders will require collateral in exchange for a business line of credit. Make sure to ask different lenders about their requirements to make the best decision.

Business credit cards vs. business credit lines

Business lines of credit are similar to business credit cards. They both offer access to a set amount of funds you can draw from as you need. Nevertheless, there are major differences between these two forms of financing.

For starters, business lines of credit feature higher credit limits than credit cards. They also make it a lot easier to access cash. Although you can withdraw cash from your business credit card, you’ll most likely be charged additional fees or a higher APR.

Aside from a 0% introductory period, business lines of credit usually feature lower interest rates than credit cards. Business lines of credit also typically come with fixed interest rates while credit card interest rates are variable, and can change according to market conditions.

However, business credit cards come with favorable rewards or cashback programs. For these reasons, you’ll want to use your business credit card to manage everyday, smaller expenses, such as office supplies, meals, travel expenses, or any other category that offers rewards.

On the other hand, a business line of credit is best suited for larger, ongoing expenses or as an emergency fund.

How can I get a business line of credit?

Several different types of lenders offer business lines of credit. The most common lenders include banks, credit unions, and online lenders.

Banks and credit unions typically have the most rigid lending requirements. You’ll need to have sound business financials, good credit, strong revenue, and have been in business for at least a couple of years to qualify.

On top of strict requirements, the application process at banks and credit unions can be lengthy, time-consuming, and rigorous. Younger businesses may especially have a hard time getting approved.

It can be much easier and faster to obtain financing from an online lender – especially for younger companies or those with less than perfect credit.

At National Business Capital, we maintain a platform with over 75 different fintech lenders. We have financing options for all different kinds of businesses. And we’ll work with you to help you find the best, customized solution based on your qualifications.

Ready to get started? Fill out our 1-minute application and a Business Financing Advisor will contact you shortly!

DeFi, Why Should You Care about it? What is it? And More Importantly, How Will it Effect You?

June 3, 2021 by Peter Spoleti / Vertex Markets Inc. Leave a Comment

For the last couple of years, DeFi has been the hottest topic in both FinTech and crypto, with many investors and developers believing it to be the future of finance. But what exactly is DeFi, and what makes it so significant?

What is DeFi?

DeFi, or “decentralized finance,” is a term used to describe any financial tool that eliminates the need for a centralized body. This means that there are no middlemen, third parties, or intermediaries involved. While this might not sound like much, the ability to cut out centralized bodies from traditional financial instruments such as loans and bonds has never happened before in economic history. DeFi allows people to trade, lend, borrow and manage their money in a way that provides complete independence. With DeFi, no institutions or organizations handle or control your money, meaning that ownership always stays with you, creating a more unrestricted financial experience.

DeFi technology is extremely new, having existed for less than ten years. The first DeFi projects to gain recognition were MakerDAO and https://app.bancor.network/Bancor, both released in 2017, which offered a lending platform that functioned without any centralized bodies whatsoever.

No more third parties

This is all made possible through blockchain technology. Blockchains allow people to manage their money securely without placing trust in any particular body or institution. Instead of putting your faith in a bank, credit card processor (like VISA), or payment gateway (like PayPal or Western Union), you can rely solely on the blockchain. This is a much safer option, as the code used to create most blockchains is open-source, which means anybody can view it. If anything were malicious or unsafe in the code, it would more than likely get picked up by the programming community.

When you use third parties, you have to place your trust in that entity’s integrity, but even the most well-known financial companies have experienced issues. There is no centralized economic body that hasn’t had to deal with some scandal in the past. But that problem is negated by Decentralized Finance.

Smart contracts play a massive role in DeFi. A smart contract is a computer-generated contract that executes upon being added to the blockchain. Smart contracts allow people to transfer value to one another under certain conditions, agreed upon by the parties involved, which are then enforced by the blockchain (rather than by a centralized body like a bank or broker).

Why should you care about DeFi?

Despite it being such a simple idea (engaging with finance without third parties), it has never entirely existed before. This is the first time in history where people can access traditional financial instruments (such as loans, bonds, and trading capabilities) without needing an intermediary, making DeFi perhaps the most revolutionary financial technology to happen in the last century.

Here are the primary benefits it offers:

Financial control

When using DeFi services, you keep control of your money. Instead of handing your money over to an organization that you do not trust, you deal with the blockchain: an open, fully automated, and transparent network. When working with a centralized body, you have to place a great deal of faith in them, hoping they will take care of your money and that they have your best interests at heart. But with DeFi, you do not have to rely on faith because you have full knowledge of the inner workings of the blockchain and smart contracts you are using.

Non-invasive

DeFi services are naturally less invasive than centralized financial tools (or “CeFi”). For instance, if you were to take out a traditional CeFi loan, you would likely have to provide the centralized body with proof of identity, bank statements and possibly even undergo a background or credit check. Not only would you hand your money to them as collateral, but you would also hand over extremely sensitive data.

However, if you were to take out a DeFi loan, you would not have to do any of this. With DeFi, nobody needs to see sensitive documents like this because no centralized body could assess or evaluate them. Everything happens via automation, so there is no requirement to pry. This makes DeFi a much more accessible and comfortable experience. Many people (rightfully) feel uncomfortable about handing over personal information to a corporation like a bank or lending provider.

Fairness

Considering how DeFi allows people to exchange and handle money without an intermediary, it is significantly fairer. It means that fees are lower, as there is no third party to profit from people’s financial activity. It also gives more people access to financial instruments. Many people worldwide cannot engage with CeFi because they do not have official documentation or because institutions choose to ignore them. For instance, there are approximately 2 billion unbanked people, meaning they cannot access traditional CeFi services. These financial services are extremely useful for modern living, and the fact that so many people have been locked out from engaging in them is deeply unfair, however with DeFi, this all changes. DeFi allows more people to gain financial stability and take control of their lives.

DeFi is a game-changing technology in both crypto and FinTech, as it allows for the creation of projects and ecosystems that run without any third parties. They let people engage with traditional financial tools without relying on institutions and intermediaries, giving people more freedom and control over their economic lives. They also offer unbanked access to loans, bonds, and trading capabilities, providing them with life-changing financial instruments that many people often take for granted. Not only does DeFi have the potential to improve people’s lives for the better, but it has the potential to change the way contemporary finance is run as a whole. For the first time, centralized financial bodies are becoming obsolete, affecting the economic landscape in unimaginable ways.

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