22 Aug ASSET BASED LENDING
Asset based lending refers to loans issued based upon the value and security of an asset. It is a loan written and approved based solely upon the value of the asset. A valuable asset is used to secure the loan. Frequently that value is established using real estate and not based upon the financial history, ability to pay or the lack thereof of the borrower. It avoids hitting the financing brick wall.
By limiting the loan to the value of the asset and not the borrower it diminishes concerns over prior payment history, current credit issues, cash flow problems and more. These concerns are not eliminated. They just don’t have as much impact in this type of financing. It avoids having your dreams go up in flames.
In our last blog we spoke about “Hard Money Lending”. Asset based lending is a second way to acquire funds when a conventional loan cannot be obtained.
Just like Hard Money Loans, Asset based loans are written and approved based on the value of the real estate, not the borrower.
Asset Based Lending provides these benefits:
• You are using OPM – Other People’s Money
• It is a very reliable source of funding
• Personal guarantee not required.
• Short processing turnaround time
• Does not impact your personal credit at origination
• Competitive interest rates
• Less risk to borrower
• Secured risk to lender
Asset Based Lending has these drawbacks:
• Default forfeits the asset to the lender
• Sometimes the terms of the loan are stricter
• The lender may charge higher interest, points or other fees.
Asset Based Lending is a tool. Just like other tools it should not be abused.
Good Luck and Good Investing!