Asset-based lending a valuable alternative

10/31/2011

The down economy has forced more banks than usual to tighten their lending restrictions, leading to less business loans being handed out. Faced with this reality, some small businesses are developing alternative ways to secure financing with their existing assets.

According to a recent survey from the Commercial Financial Association, asset-based loans increased from $63.5 billion in 2009 to $66.1 billion by the end of 2010.

One form of asset-based lending being utilized is factoring. According to The Wall Street Journal, factoring is a short-term financing arrangement with specialized funds for companies that deliver business loans based on invoices or accounts. Some firms prefer this method because of the quick turnaround time - usually 24 to 48 hours - compared to the typical 30 to 60 days of regular loans.

"Asset-based lending can be a little more expensive but it is simply allowing small businesses to survive and thrive in this down economy," said Kris Roglieri, president of Albany, New York-based Prime Commercial Lending. "It is becoming a lifeline for many small businesses, which would otherwise have to close their doors."

Roglieri adds that lenders will look at a company's accounts receivables or inventory over actual finances, which can benefit a business with large amount of hidden assets.