Asset-based lending allows you to leverage the value of your existing assets, such as inventory, accounts receivable, or equipment, to secure a loan. Unlike traditional loans that hinge heavily on credit history, asset-based lending focuses on the inherent worth of your business’s holdings. 

Every Houston business owner understands the importance of securing capital to fuel growth and navigate challenges. But what if your credit score isn’t the golden standard? Traditional loan options might seem out of reach. Thankfully, there’s an alternative: asset-based lending which opens doors to financing opportunities even for businesses with a developing credit score.

Why Choose Asset-Based Lending?

While the ability to secure financing beyond credit scores is a significant advantage, asset-based lending offers a range of benefits for businesses:

  • Gaining Capital Even with Imperfect Credit:  For businesses with a developing credit history or those that haven’t established a long track record, asset-based lending provides a valuable alternative. By leveraging the value of your assets, you can access the capital needed to grow and thrive.
  • Increased Borrowing Potential: Traditional loan options often have limitations based on creditworthiness. Asset-based lending, however, considers the value of your collateral, potentially allowing you to borrow more than traditional lenders might offer. This increased borrowing power can fuel significant growth initiatives or help navigate unexpected financial hurdles.
  • Flexibility for Growth and Working Capital: Asset-based loans can be structured as lines of credit or term loans, offering flexibility to meet your specific needs. A line of credit provides ongoing access to capital as your inventory or receivables fluctuate, perfect for managing working capital needs. Term loans offer a lump sum for specific projects, ideal for financing equipment purchases or expansion plans.
  • Potentially Lower Interest Rates: Since the loan is secured by collateral, asset-based loans can sometimes come with lower interest rates compared to unsecured loans. This translates to significant cost savings over the loan term, improving your business’s overall financial health.

Learn more about real estate financing with LJC Financial. 

Types of Collateral Used in Asset-Based Lending

Not all assets are created equal when it comes to asset-based lending. Here are some of the most common types of collateral used, along with how they can impact your loan:

  • Accounts Receivable (A/R): Unpaid invoices owed by your customers can be used as collateral. The loan-to-value ratio for A/R typically falls between 70% – 80%, meaning you can borrow up to 80% of the outstanding invoice value.
  • Inventory: Raw materials, finished goods, and work-in-progress inventory can also be used as collateral. However, the loan-to-value ratio for inventory is generally lower (around 50%), as the value of inventory can fluctuate.
  • Machinery and Equipment: Owned machinery and equipment can be used as collateral, with loan-to-value ratios varying depending on the age, condition, and marketability of the equipment.

Real Estate: If your business owns real estate, it can be used as collateral for a higher loan-to-value ratio (up to 70% or more). However, this option ties up a significant asset and requires a longer approval process.

Is Asset-Based Lending a Good Fit?

Not every Houston business is a perfect candidate for asset-based lending. Here’s what to consider:

  • Asset Strength: The value and type of assets you hold (receivables, inventory, equipment) determine eligibility and loan amounts.
  • Financial Health: Lenders assess your cash flow and growth projections to ensure repayment ability and future potential.
  • Financing Needs: Match your needs (working capital, project funding, expansion) with the loan structure (line of credit vs. term loan).
  • Cash Flow Impact: Ensure loan repayments won’t strain your ability to manage daily operations.

LJC’s Support For Financing Your Business Dreams

Asset-based lending opens up financing for Houston businesses with valuable assets, even if their credit history isn’t perfect. Explore other Houston hard money loans and private lending options and consult LJC Financial to find the best fit for your goals.

Ready to take the next step? Contact LJC Financial to discuss your financing needs!