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How to Use Hard Asset Based Loans for Your Business


Hard Asset Based Loans for Your Business


Are you looking for a way to fund your business without relying on credit cards or bank loans? If yes, you should consider using hard asset based loans for business.

Hard Assets

Hard Assets based loans are a great way to finance your business!

You can find hard asset based loans for businesses in any industry. The asset based lending programs are designed to provide flexible terms and competitive rates and are secured against your company assets such as equipment, inventory, accounts receivable, etc. This finance option also offers better terms than other forms of financing.

Banks and finance companies usually offer a hard asset based loan. Hard asset based financing is a type of loan where a company borrows funds against assets such as real estate or equipment. This kind of funding is usually secured against collateral.

The borrower has to pay back the principal plus interest over time. They are typically used to purchase new equipment, expand existing facilities, or refinance debt.

The interest rates charged on these loans are higher than those associated with conventional loans. These asset-backed loans make them less attractive to smaller businesses.

This business loan is becoming more common because it helps companies get cash without selling their assets. It can provide a viable option for larger businesses that want to borrow large amounts of money. Companies can use these loans to fund growth and expansion.

After reading below, you’ll have a deeper understanding of the ins and outs of asset-based financing, which is an option worth exploring if your company has considerable assets that could serve as collateral for a loan.

Our focus is to assist business owners and commercial contractors in securing funding for their operations as quickly and efficiently as possible.

Here are the key components to consider before applying for a hard asset-based loan.


What is Asset-Based Lending vs. Hard Money?


Business owners, what happens if you find yourself in a position where you do not qualify for traditional bank financing or lending programs when you search for a business loan due to multiple factors, including a bad credit score?

What happens when you need additional capital or a cash advance to take advantage of a tremendous business opportunity?

Perhaps you need to consider taking “non-traditional” financing by seeking an alternative lender or online lender that offers small business funding based on your assets or collateral. Maybe someone recommended a hard money lender?

The question is, what’s the difference between a hard money loan and an asset-based loan? It is a common question, yet the answer is often confusing. Hard money loans are traditionally a type of asset-based financing. In broad terms, an asset-based loan is a loan to a company that is secured by the company’s tangible assets as collateral.


Asset Based or Hard Money Lending

Definition of assets

This type of lending refers to using an asset to secure financing.

Collateral or assets like real estate, stocks and bonds, equipment, inventory, and accounts receivable secure the financing.


What is Asset-Based Loans?


Some think hard money or asset-based loans to be the last resort for those who can’t get approval for a loan at a regular bank but need cash quickly for an opportunity they can’t pass up.

A viable substitute is available. Private lenders, non-bank lenders, and asset-backed lenders all serve the business community with rates that are more competitive than those of conventional hard money lenders.

Business owners can enjoy many of the same advantages previously available to only large corporations.

In an asset-based loan, the borrower pledges an actual physical item (the asset) as security for the loan. For most companies, inventory or accounts receivable act as collateral.

It’s important to note that collateral might be any asset whose value can be determined reasonably. For many small companies, this is equipment or machinery.

Asset-Based Lenders will determine a loan amount based on a percentage of the collateral’s overall value. With accounts receivable financing, around 80% of the value of receivables is the industry standard.

Around half of the value of a finished stock is the average percentage for completed inventory. Depending on many variables, equipment or machinery may be around 50% – 80%.

In terms of cash, the loan amount is equal to the percentage multiplied by the asset’s value.

What is Loan to Value?


A loan-to-value (LTV) financial ratio relates to the amount of money borrowed against the value of the item financed. The loan-to-value (LTV) ratio is a crucial indicator of the lender’s exposure to a loan default.


Are Asset-Based Loans Right for Your Business?


Here are five common reasons to consider using your business assets to secure a loan.

  1. When a business must fund quickly (to meet strict deadlines) or wants to eliminate the time and mounds of paperwork involved in applying for a bank loan.
  2. Business owners that are working to repair their credit
  3. Companies that don’t have the money to take advantage of promising new chances,
  4. When an owner wants more money than the bank can supply
  5. Business owners who are tired of spending too much time trying to raise money rather than exploring new opportunities


 Hard Money Loan


CAUTION: You should approach hard money lenders with caution because of their negative association with loan sharks. Numerous instances exist where less than scrupulous banks or alternative lenders actively seek loan defaults to foreclose on collateralized properties. Shady lenders will take an owner’s security deposit but never fund the loan.


Your first step is to check to see if you have the equipment, inventory, or accounts receivable that could serve as security for an asset-based loan.

You must put up some sort of collateral to get approved for an asset-based loan. If you default on your loan payments or otherwise violate the terms of your loan arrangement, the lender can repossess the collateral.

Small and medium-sized businesses with consistent revenue and a variety of liquid assets are prime candidates for asset-based financing.

Compared to unsecured funding, the interest rate on asset-based loans is lower, making them an attractive option for large businesses.

Asset-backed loans can be helpful for business owners with less-than-perfect credit because the collateral mitigates the lender’s risk. Because of this, asset-based loans are typically easier to obtain than other forms of financing.

Asset-based lending is distinct from factoring in that you do not have to sell off your assets to secure financing. To fund an asset-based loan, the lender would advance you a proportion of the total value of the collateral you’ve given.

You might use the money for anything you need, including business expansion, stocking up on supplies, or making payments to vendors and staff.

Asset-based loans typically carry steep interest rates, and you may also be required to pay for the lender to perform periodic audits of your business. Although these loans require collateral, they are often cheaper than unsecured loans or merchant cash advances.

If your company defaults on its payments, your lender will repossess and sell the collateral to repay the loan.

To be eligible for financing, borrowers must meet the criteria of specific traditional lenders, and those lenders may only accept particular property or asset types. In addition, lenders may place a value on your asset lower than its market value, decreasing the amount you can borrow.

After factoring in audit and appraisal costs, an asset-based loan can cost more than other financing options.

The businesses that can benefit the most are companies that:

  • Need for capital
  • Limited operating history
  • Have cash flow that fluctuates
  • Rapid growth
  • Have physical assets
  • Acquisition
  • Recapitalization


Primary industry types are:


  • Retailers
  • Staffing
  • Manufacturers
  • Logistics
  • Wholesalers
  • Business Services
  • Distributors


How to Apply for an Asset-Based Loan


Banks and alternative lenders such as those found online like Sunwise Capital may provide asset-backed loans. Though they often charge higher interest rates and fees, online lenders are easier to work with and offer quicker funding than banks.

Collateral can be either physical items or documents when applying for a loan. “Paper assets” refers to stocks, investments, and bonds, whereas “hard assets” refers to land, trucks, and autos.

Lenders will look at collateral and evaluate the following factors related to your business and yourself.

If you have nothing in the way of a commercial track record, your personal credit history will carry greater weight.

Some lenders may want to examine your company’s finances to assess your ability to repay a loan.


Real Estate Investors Use Hard Money Loans


Commercial real estate and residential real estate are both substantial markets for business lenders to feel increasingly confident in the underlying properties. Real estate investment is historically safer, with the property backing the loan as collateral.

National mortgage providers like CoreVest have access to more information and data about individual properties, making the internet perfect for a real estate investor.

Commercial hard money loans may place less emphasis on the borrower’s income and credit history and more on the investment property’s cash flow, offering more rate flexibility as it gains confidence in the underlying collateral.

Commercial lending increases interest in asset-based lending for real estate holdings, resulting in more efficient funding mechanisms.

Usually, a private lender, or even direct lenders, has no spending covenants so that business owners can increase the return on their real estate holdings in unprecedented ways. A traditional lender, like a bank or credit union, will undoubtedly have covenants if they approve the commercial financing.


Cash Flow vs. Asset-Based Business Lending


Borrowing money is essential for any business, whether a new venture or has been around for 20 years. Getting financing on behalf of a company might be more convoluted than the typical consumer’s loan alternatives because businesses have access to numerous sources of financing.

Borrowing money is an option for businesses looking to expand their operations, make a sizable purchase, or finance a merger or acquisition. All sorts of sources and financiers are at their disposal for this purpose.

Loans to businesses, like personal loans, can be secured or unsecured. Within these two broad categories, financial institutions can offer various lending provisions to satisfy different borrowers’ needs.

Traditional loans and those from an asset-based lender secured by collateral are preferred over loans that are not, which is why the terms are so different.

Cash flow loans and asset-based loans are both a secured loan that firms may consider. We’ll contrast the two below and discuss when one would be preferable over the other.

Fixed Assets


Cash Flow Lending


Although cash-flow and asset-based loans are typically secured, many internet cash flow lenders now offer the former without collateral, making it an unsecured loan. Private credit sources will provide access to capital as a term loan which will look more like a traditional loan. The loan term can be from 6 months to maybe two years.

When underwriting the terms of a loan, cash flow is a consideration for cash flow-based loans, while balance sheet assets are a consideration for asset-based loans.

Since cash flow and asset-based loans are often secured loans with better credit conditions, they might be ideal solutions for businesses looking to control credit expenses effectively.

Borrowers of both asset- and cash-flow-based loans often put up some cash flow or asset collateral with a traditional lending bank.

Cash flow finance allows a business to pay for immediate expenses like purchasing inventory while deferring commercial loan and interest payments until the company sees a profit from the inventory sale.

Real estate or tangible assets are not required as physical collateral for these loans. However, the underwriting criteria may insist on securing a portion of the cash flows that can be a part of the loan’s repayment.

Requiring collateral or security is a hallmark of traditional financing.

When deciding whether to make a cash flow loan, a money lender considers the company’s credit history, the business (industry), and future profit projections.

This approach can potentially reduce the time it takes to secure funding for a business because it eliminates the need for a collateral valuation. Many online like Sunwise Capital can approve an application in minutes and fund in a few hours.

Companies with high margins or an insufficient amount of physical assets to offer as collateral are good candidates for cash flow loans. Service providers, advertising agencies, and makers of low-margin goods are all examples of suitable businesses.

Due to the lack of tangible collateral that the lender may retrieve in the event of default, interest rates for these loans are often higher than the alternative.

Thanks to cash flow-based lending, asset-based finance is available to corporations that can get a conventional loan based on their anticipated cash inflows in the future.

In cash flow lending, a financial institution uses the borrower’s past and projected cash flows as the collateral for a loan.

This loan type indicates that the corporation is funding its operations with money it expects to earn in the future. Similar to other forms of lending, credit scores play a significant role in this type of financing.


Asset-Based Lending


Companies can get loans based on their balance sheet assets’ liquidation values through asset-based lending. You obtain this financing by pledging balance sheet assets like equipment, real property, inventories, or accounts receivable to the lender.

This loan is primarily determined by the borrower’s credit history, with cash flow (especially related to any physical assets) playing a secondary role.

The advantage of using asset-based lending is that the value of the pledged assets is unlikely to vary over the term of the loan. However, if the value of the pledged asset declines significantly, the lender could lose the entire loan amount.

In addition to the advantages above, companies can access various financing options. These options are due to the availability of different types of collateral. For example, banks lend against inventory, accounts receivable, or real estate, and smaller companies may choose to use equipment as collateral.


Underwriting Guidelines


Asset-based loans emphasize asset value more than credit score, revenue, profitability, or cash flow.

Interest rates for asset-based lending can vary widely—anywhere from 7% to 30%.

Repayment periods can vary from 12 to 72 months.

Although you may not need to provide this information, it’s a good idea to have the following available:

  • Balance sheet
  • Profit and loss statement
  • Sales forecast (particularly helpful for newer businesses or startups)
  • Business bank statements
  • Business tax returns




In conclusion, hard asset based loans might be the perfect loan for any entrepreneur looking to expand their business. They’re also a great option if you have a lot of debt but still need money to grow your business.

Using hard asset-based loans, you can use your existing assets (like real estate) to secure financing, which means you won’t have to sell anything to get the cash you need. This strategy makes hard asset based loans perfect for entrepreneurs who need to build their business without selling off their most valuable assets.

The entire process is pretty simple. These loans can be approved quickly and funded within a few days with reasonable loan options and terms.

Want to learn more?

Call 888.456.9223 or start by filling out this brief form.

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Mark J. Kane, Founder & CEO of Sunwise Capital, is a distinguished entrepreneur with over 16 years in business financing. Beginning as a psychologist, he quickly became a trailblazing Hospital Administrator. Mark has built multiple ventures, notably accelerating a startup to $18M within months. His transition to Sunwise Capital stems from a deep-seated desire to empower business owners with strategic financial solutions. Recognized for his expertise, Mark's leadership at Sunwise Capital reflects his commitment to fostering business growth and success. about the author.

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