Businesses that may not qualify for a traditional bank loan because of low balance sheet ratios and cash flow shortages can use their accounts receivable and inventory as collateral in asset-based financing. A percentage of the value of the company’s assets is used to determine a revolving line of credit from which you can draw what you need when you need it. Interest is only charged on funds that have been drawn, making it more flexible and less expensive than a term loan.
This type of financing is ideal for businesses, with credit-worthy customers, that may be growing faster than their working capital or for businesses that may experience an interruption in their cash flow because of seasonal demands or industry cycles. It provides immediate and stable capital that can also be used for operating expenses, company restructuring and growth.