In the intricate world of asset-based financing, we’ve gathered the wisdom of CEOs and founders to offer you their best tips. From balancing leverage with risk management to maintaining and knowing your asset’s worth, explore the diverse strategies in our compilation of nine expert insights.
Balance Leverage with Risk Management
When using asset-based financing, it’s important to balance leveraging your assets with managing risk. This type of financing allows you to access funds by using your company’s assets as collateral, which can help with growth and liquidity. However, you need to be careful not to pledge more assets than you can afford to risk.
One good strategy is to use a layered approach to protect your assets. This means diversifying the types of assets you use as collateral and possibly setting up different financial structures like LLCs or offshore trusts. For example, if you’re using real estate as collateral, be prepared for market downturns or legal issues by having backup plans in place.
Also, make sure you fully understand your financing agreement. Know how your assets will be valued, the lender’s rights if you default, and how changes in asset values might affect you. By being proactive, you can use asset-based financing effectively while minimizing risks and keeping your business financially healthy.
Blake Harris, Attorney, Blake Harris Law
Keep Well-Organized, Accurate Asset Records
One tip for effectively using asset-based financing is to maintain detailed and accurate records of your assets. This ensures that you can quickly and accurately provide the necessary documentation to your lender, streamlining the approval process and securing the best terms.
In our experience, having a well-organized asset management system allowed us to leverage our receivables and inventory efficiently. This not only improved our cash flow but also provided the flexibility needed to invest in growth opportunities without diluting equity. Keeping thorough records also helped us build trust with our lenders, which proved beneficial for future financing needs.
Shehar Yar, CEO, Software House
Leverage Legal Expertise
As the owner of Estates Done Right, my top tip for using asset-based financing is to leverage legal expertise. I’ve found that having a solid understanding of the legal aspects of asset-based financing is crucial. It’s helped me navigate complex contracts and ensure we’re protecting our interests.
I always consult with our legal team before entering into any financing agreements. This approach has saved us from potential pitfalls and allowed us to secure better terms. By leveraging legal expertise, we’ve been able to maximize the value of our assets while minimizing risks.
Thomas Petrelli, Founder, Estates Done Right
Utilize Positive Cash-Flow Properties
I’d say the best way to do it is to utilize positive cash-flow rental properties. I’ve seen many clients succeed with this strategy over the years. First, find properties that generate more income than they cost to maintain. Then, use these properties as collateral to secure financing for other investments or business expansions. It’s important to keep detailed records of your rental income and expenses.
Remember, the key is to choose properties in areas with strong rental demand. By doing this, you can create a stable financial foundation for your business growth.
Matt Willoughby, Founder, OneStop Financial Solutions
Leverage Intellectual Property Collateral
As the founder of FuseBase, I’ve learned that leveraging intellectual property as collateral can be a game-changer. Our software patents have been a goldmine for securing asset-based financing. I always tell other tech startups to take a good look at their IP portfolio—it’s often worth more than they realize.
We’ve used our patents to get loans that helped us scale up quickly without giving away equity. Just be sure to have a solid plan for how you’ll use the funds and pay them back, because you don’t want to risk losing your valuable IP!
Prioritize Tax Incentives and Fast Lending
As the CEO of Coastal Kapital, I’ve seen firsthand how asset-based financing can be a strategic advantage for businesses. It offers 100% financing, including soft costs like warranties, with no down payment required.
My top tip is to leverage tax incentives, such as Section 179, to reduce taxable income. Also, choose a lender with a fast turnaround and simple application process to access funds quickly. Fixed-rate payments ensure predictable cash flow, and avoiding compounded interest can lead to significant savings.
Most importantly, opt for financing that doesn’t involve a hard credit pull or personal credit reporting. This approach helps protect your personal credit while building your business credit profile through established installment trade lines.
Kortney B. Murray, CEO, Coastal Kapital LLC
Understand and Forecast Asset Depreciation
In the process of my experience as a finance director, my top tip for effectively using asset-based financing is to thoroughly understand the value of your assets and forecast the depreciation accurately. Misinterpretation can lead to financial instability.
For instance, at Relyir Artificial Grass, a significant investment was made in high-quality equipment for manufacturing artificial grass products. Proper valuation, coupled with precise forecasting of depreciation, was crucial to ensure the viability of our asset-based financing strategy as it influenced our ability to secure appropriate loans, manage repayments, and maintain cash flow stability.
My advice is, always work closely with your finance team or external auditors to get an accurate valuation of your assets before proceeding with asset-based financing.
David Chen, Finance Director, Relyir
Build Robust Lender Relationships
One key piece of advice for effectively using asset-based financing is to maintain a robust relationship with your lender. Asset-based financing isn’t just about securing a loan; it’s about building a partnership.
I’ve found that open communication with your lender can make a significant difference. Keep them informed about your business’s performance and any changes in your assets. This transparency helps in securing better terms and ensures that if you hit a rough patch, you’re more likely to get the support you need. Additionally, regularly reviewing your asset management strategy and keeping your lender in the loop can lead to more favorable financing options and a smoother financial journey.
Austin Rulfs, Founder, SME Business Investor, Property & Finance Specialist, Zanda Wealth
Maintain and Know Asset Worth
Keep the assets you’re using in good shape and know their true worth. People often forget how important it is to check and fix their assets, which can make them seem less valuable and lead to worse loan terms. By keeping good records and making sure your assets are in great condition, you’ll not only get better rates but also gain the trust of lenders. Paying close attention to these details can boost the effectiveness of your asset-based financing plan.
Alex Taylor, Head of Marketing, CrownTV
Brett Farmiloe is the founder of Featured, a Q&A platform that connects brands with expert insights.
Asset-based financing stock image earth phakphum/Shutterstock
