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Improve Your Cash Flow through Asset Based Lending

Mar 31, 2008
If you are facing cash flow problems, due to long credit period offered to your clients or due to money getting stuck in catering to large purchase orders while running your company, despite having healthy sales orders and profits, then asset based lenders could come to your rescue.

As banks offer only fixed loans against collaterals, you could have a tough time in availing such a loan. Besides, inter banking crunch has now forced banks to become very strict in their lending terms. Compared to that, asset based lending firms offer loans, not only against your fixed assets, such as your commercial buildings, but also against your receivables and also against your purchase orders or letters of credit, in case you have overseas customers. In other words, you can avail of a loan against your pending invoices and this method will provide you with instant cash, which can then be utilized to make your salary payments or used to clear off any other expenses.

You can also make bulk purchases and avail of quantity discounts, which otherwise would not have been possible. Asset based lenders also approve loans on a faster basis as compared to traditional banks and this could mean that you get your hands on the cash, when you need it the most. Although the rate of interest in such loans is higher than what banks offer, the range of services offered by these asset based lenders is also much more and the time taken to approve a loan by an asset based company is quite less as compared to a bank.

When you apply for a loan from an asset based lending company, they will scrutinize your credit record and also check out whether your assets are liquid. Then, depending on the credit period, which you have offered to your clients, the lending company can quote the fees, which will be applicable to you. You can expect up to around 75% of your invoices and around 30 to 80% of your inventory value to get approved as your loan amount. This means that you now have enough cash to put your plans such as any expansion or even clearing old business debts into action.

You should however, calculate the rate of interest of these loans against the benefits offered, before making any decision to avail of such a loan. If your profit margin is too low and if you have offered a very long credit period to your clients, then this type of an arrangement could only transfer your meager margins to your lending company. It is better to understand all the facts, before entering into such an arrangement. In addition to improving your cash flow, these companies can also offer receivables processing and collection of payments from your clients. This means that you do not have to worry about following up on your clients, once you have supplied material to them. You therefore end up making savings by not hiring additional staff for your collections.

So, check out some of these assets based lending companies by comparing their interest rates and the range of services offered by them. There are many companies advertising on the Internet, but crosscheck all the companies, before deciding to go in for any one of them. Your cash flow problems could be solved very fast, in case you decide to hire the services of an asset based lending company.
About the Author
Accounts Receivable Financing can help your business grow and by solving cash flow problems. The Internal Revenue Service (IRS) has a guide on what defines an Accounts Receivable Financing Company . To receive a quick quote visit this website at: http://www.factorquote.com
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