Conventional financing solutions for instance lines of credit and loans are mostly extended to well establish companies with enough collateral and a growing cash flow. However, purchase order financing does help out new companies so long as the companies show traction in the specific transaction they want to be funded.
By asset-based lending, we mean a loan that is extended to businesses and a collateral is used to secure the loan. The loan can be secured by accounts receivable, inventory or any other balance-sheet assets. Some people do use the term commercial financing to describe this type of loan or line of credit.
The first and most important benefit that your company gets from asset-based financing is improving the liquidity, this facility when properly managed, it can improve financial stability and the help the cash flow become more predictable. This type of financial services is ideal for companies with seasonal revenues and tight cash flows.
More flexible compared to other types of financing
Under this type of financing, the level of restriction on how to spend your money is low, provided you use it for business purposes. Also, as your sales increases, your line can increase too, since your accounts receivable and the financing line are tied together. This type of financing is ideal for growing companies that are in need of more funding.
Comparing financial services such as conventional lines of credit to this financial service, we can say asset-based loans have fewer covenants? For this reason, staying in compliance and managing the line is easier.