What is an Asset Based Loan?
An asset-based loan or asset utilization loan uses assets as income. Whether you are a retiree with a small fixed income, a new business or an established company that needs to maintain a high cash flow, the ease and benefits of asset-based loans and mortgages have made them a popular solution for borrowers in recent years. With an asset-based loan agreement, also known as an asset depletion loan, borrowers are granted a loan based on their assets. An asset-based loan or mortgage allows you to utilize the assets you have already invested in to secure the cash you need now.
Asset utilization loans are perfect for retirees, investors, and/or self-employed borrowers that have assets on-hand.
Pros
- Secured by Collateral: Asset-Based Loans are easier to obtain as they are secured by collateral.
- Flexibility: These loans offer more flexibility in terms of repayment schedules and interest rates.
- Multiple Uses: They can be used for a variety of purposes, including working capital, inventory financing, and equipment purchases.
- Relaxed Qualifications: Asset-Based Loans can be a good option for businesses with poor credit or limited operating history.
Cons
- Higher Rates: These loans often come with higher interest rates than traditional loans, which can make them more expensive in the long run.
- Collateral Required: Asset-Based Loans require collateral, which means that borrowers risk losing their assets if they are unable to repay the loan.
- More Restrictive Terms: They may have more restrictive terms and conditions than other types of loans, which can limit a borrower’s flexibility and ability to manage their finances.