Small business owners who can’t get the cash they need from traditional banks are turning more frequently to asset based lenders. Smalls with no proven credit record can still get financing on the basis of their accounts receivable, existing inventory, equipment and even invoices. Unlike factoring, in which receivables are actually sold to another firm at a discount, in asset based lending, the business holds on to its receivables and repays the loan when it collects on them. That can be a lifeline in today’s tight credit markets, with banks not willing to take many chances.
But asset based loans do come with a few hitches. For one, borrowers pay higher costs. That’s because lenders must hire outside monitors to scrutinize a firm’s balance sheet. Then they pass on the expense in the form of higher interest than from traditional loans. Plus borrowers are required to submit business plans that show projected sales and future steady growth. “There is a lot more due diligence involved,” says Andrej Suskavcevic, CEO of the Commercial Finance Association. “The process to approve the loan is more rigorous.”
Asset based loans still represent only a small slice, about 5%, of the commercial lending market. But they represent a higher share of lending by small firms. The market grew 8% to hit nearly $600 billion in 2008 and is likely to hit $700 billion by 2010.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Companies considering asset based lending should seek out finance companies that specialize in their industry. “There are some companies selling snake oil,” warns Marilyn Landis, president of Basic Business Concepts, Inc., a Pittsburgh based financial services consulting firm. She suggests looking through trade journal advertisements and talking to customers, suppliers and even friendly competition. Before making any final decisions, ask the lender for referrals from previous borrowers.
-
It's Time to Rethink What 'Aging Well' MeansDon’t fall into the trap of thinking there is a "right way" to age. Here's how to reframe aging in a healthy, achievable way.
-
Your Guide to Financial Stability as a Military SpouseThese practical resources and benefits can help military spouses with managing a budget, tax and retirement planning, as well as supporting their own career
-
3 Steps to Keep Your Digital Data Safe from CyberattacksAs data breaches and cyberattacks increase, it's vital to maintain good data hygiene and reduce your personal information footprint. Find out how.
-
Humanoid Robots Are About to be Put to the TestThe Kiplinger Letter Robot makers are in a full-on sprint to take over factories, warehouses and homes, but lofty visions of rapid adoption are outpacing the technology’s reality.
-
Trump Reshapes Foreign PolicyThe Kiplinger Letter The President starts the new year by putting allies and adversaries on notice.
-
Congress Set for Busy WinterThe Kiplinger Letter The Letter editors review the bills Congress will decide on this year. The government funding bill is paramount, but other issues vie for lawmakers’ attention.
-
The Kiplinger Letter's 10 Forecasts for 2026The Kiplinger Letter Here are some of the biggest events and trends in economics, politics and tech that will shape the new year.
-
Disney’s Risky Acceptance of AI VideosThe Kiplinger Letter Disney will let fans run wild with AI-generated videos of its top characters. The move highlights the uneasy partnership between AI companies and Hollywood.
-
AI Appliances Aren’t Exciting Buyers…YetThe Kiplinger Letter Artificial intelligence is being embedded into all sorts of appliances. Now sellers need to get customers to care about AI-powered laundry.
-
What to Expect from the Global Economy in 2026The Kiplinger Letter Economic growth across the globe will be highly uneven, with some major economies accelerating while others hit the brakes.
-
The AI Boom Will Lift IT Spending Next YearThe Kiplinger Letter 2026 will be one of strongest years for the IT industry since the PC boom and early days of the Web in the mid-1990s.
