If you are among those who believe that banks and credit unions are the only sources of large-scale financing, it is time to consider asset-based lending. It’s a different kind of lending that certain types of borrowers find very attractive. Among its most loyal fans are property investors and business owners.
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The Basic Premise
Asset-based lending’s basic premise is more easily understood by comparing it to traditional lending. Let us start with the latter. You might go to a traditional lender to get a mortgage, car loan, or personal loan for taking that overseas vacation you have always dreamed of.
Your bank or credit union is required by law and its own internal policies to verify your ability to repay. So they will run a credit check. They will ask you to provide pay stubs at a bare minimum. You might also have to produce bank statements, tax returns, and other documents. The bank will investigate your credit history and your current debt load before deciding.
None of that matters to an asset-based lender for approval purposes. An asset-based lender might run a credit check to determine the rates and terms it offers you, but your credit score and history will not matter to the lender’s approval decision. Instead, the lender will ask you to put up some sort of asset as collateral. The approval decision will be based on the value of that asset compared to the loan amount.
Asset-Based Lending’s Big Advantages
Now that you understand the basic premise, it is time to discuss the big advantages asset-based lending brings to the table. Right from the start, you can probably surmise that asset-based lending is easier to obtain as long as you have solid collateral. This is important to someone like a property investor.
Traditional lenders don’t like the risk attached to property investing. So qualifying for a traditional loan to purchase a new property is very difficult. Asset-based lenders, like Salt Lake City’s Actium Lending, do not shy away from real estate investing. They will approve an investor’s application when a bank will not.
Faster Approval and Funding
Traditional lenders need weeks to complete the underwriting process because they have so much research to do. That is why it can take 90 days or more to get a conventional loan. Asset-based lenders only need to do one thing: value the collateral being offered to back the loan. It is usually real estate, so lenders only need to get an appraisal. That can be done in a couple of days or less.
Better Business Accessibility
If property investors are the top customers in asset-based lending, small businesses are a close second. Businesses often struggle to get conventional loans in a timely manner because lending requirements are so stringent. Even businesses that can afford to borrow struggle with conventional lending.
Once again, asset-based lending steps up. It goes back to collateral once again. A business generally has to offer property or high-value business equipment to get approved. But it is generally not a big deal.
More Direct Lending
There are still more benefits, but I have run out of space. It all boils down to this: asset-based lending is more direct. Lenders offer their own funds directly to borrowers without having to worry about shareholders, boards and committees, multiple layers of underwriters, etc.
Traditional lending has its place. It offers borrowers plenty of opportunities to meet their financing needs. But where conventional lending cannot get it done, asset-based lending usually can. For certain types of funding needs, like real estate investing, asset-based lending is awfully hard to beat.