If your small business is in need of a cash infusion a traditional small business loan may be intimidating. First, there are the months for the application and approval process. Generally, the loans are for longer terms and your business may be cyclical where you don’t know what your income will look like next year, much less five years from now. Finally, as a new business, you may not have built enough credit to be eligible for the loan you need. Asset-based lending may be the answer you need to your cash flow woes.

What Is Asset-Based Lending?

Asset-based lending is a short-term loan, usually no longer than two years but sometimes as short as six months that’s a good way to access cash for business with lots of accounts receivable and inventory on hand. A loan can be secured with your accounts receivable, your inventory, your equipment, and your real estate.  The accounts receivable is usually the majority of this type of loan and while you should have a good credit rating anyway, it is less imperative than for a traditional loan. Your debt-to-capital ratio also won’t have an impact on your approval.

A traditional loan can be based on your projected business, and while it is secured with your assets, a loan that is larger than your existing business can mean that you wind up securing the loan with personal assets like your home and car. Asset-based lending, however, is based on what your business currently has and the money it is owed, so you know that your loan can’t outstrip your ability to pay.

Who Benefits from Asset-Based Lending?

This type of lending can be a better road for businesses considering factoring but that have strong inventory already established, because the associated fees are lower. Also unlike factoring, generally your clients will never know that you’ve entered this kind of loan. If you are ready for an expansion or suddenly experience unexpected growth, this lending may be right for you. On the other hand, if you need cash to actually create an inventory or your clients tend to pay slowly, stretching right out to the 90-day limit, factoring may be a better solution.

No matter which option you choose, there are solutions when you need cash quickly and don’t want to be caught in a long-term repayment plan. Your current business situation will help you determine what type of short-term cash fix is best for you.