5 myths about asset based lending debunked

27 Jan 2022

Asset finance comes in many different forms. Some people use it to purchase equipment for their business, but it has lots of other uses too. In our latest mythbuster instalment we’re taking a closer look at the most common asset-based lending misconceptions.

Fleet of vans

Myth 1: Asset finance is only appropriate for purchases

Asset finance is typically associated with the purchasing of a business asset, such as a piece of equipment, vehicle or machinery. A cafe owner might use it to purchase a new fridge or an ecommerce firm might use it to invest in a new fleet for deliveries, for instance  

It’s true that asset based lending enables businesses to fund big purchases by allowing them to spread the cost over a set amount of time.  

Without it, the business might not be able to afford the equipment they need to meet customer demand. On the other hand, they might be able to afford the purchase outright, but want to preserve their capital for other purposes, such as hiring more staff. 

But asset based lending is a much broader concept.

It also relates to when businesses use the assets they own – such as a property or an existing piece of machinery – as security against a loan from an asset finance provider. Even your sales ledger, stock from a supplier or future sales can be used as an asset to secure finance. That’s what makes it so flexible. 

Myth 2: It’s for cash-strapped businesses

Asset based finance isn’t just for cash strapped businesses – it’s for any company that requires it. Healthy cash flow is the lifeblood of any business. Funding for the purchase of an asset, new stock or whatever else is required can help prevent cash flow gaps and while providing a business with the means by which to fund its growth.

Depending on the context, debt needn’t be seen as a negative thing. Approaching business finance in a strategic way can help business owners seize opportunities and obtain the investment they need to meet growing customer demand as the economy recovers.

Myth 3: I need a perfect trading history to get asset funding

Flexible lenders and innovative fintech companies are making finance more accessible for businesses that haven’t been trading for years, or even those who might have a less-than-perfect credit history. Take our Funding Cloud, for instance.

Funding Cloud matches SMEs to lenders to facilitate fast access to business finance. The aim of the platform is to break down barriers to funding and empower businesses with the funding they need to recover, trade or grow. The platform compares over 120 lenders and relies on precise lender matching and real-time funding decisions. 

Myth 4: Approval times are long

Gone are the days of having to wait weeks to hear back from a business bank, only to find out you’re not eligible for finance. Today, technologies such as open banking are accelerating the funding application and approval processes for businesses.

Funding Cloud’s average approval time is one minute and the average drawdown time is 25 minutes following an offer being made. The record for fastest time from loan application to credit approval currently stands at 20 seconds and the fastest time from loan application to cash in the bank is 18 minutes. You can’t get much faster than that!

Myth 5: Taking out finance could harm client relationships 

When it comes to asset based lending types like invoice factoring, some businesses feel like they have to pass control over certain aspects of the client relationship to the lender. With invoice factoring, the lender provides ‘credit control' services to ensure clients pay on time. 

However, this could be just what you need to enable you to focus your full attention on developing your product and service, and, ultimately, growing your business. You could always opt for invoice discounting if you’d rather retain full control.

Both invoice factoring and discounting provide businesses with up to 95% of the sum of their invoices in a day or two instead of having to wait weeks or even months. Whatever your goals are, the right type of funding can improve your cash flow and speed up your growth.

Get started to see what you could be eligible for today. 

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Vivek Seda
Vivek Seda

Asset Lending & Property Team Lead

Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.

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