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<\/a>From Basic Berkonomics: Available Amazon, B&N, berkus.com and booksellers everywhere.<\/p><\/div>\n
materials to fill all orders would leave a company operating under capacity. An asset-based lender finances the purchase of the raw material.\u00a0 The purchase orders are then assigned to the lender. After the orders are filled, payment is made directly to the lender by the customer, and the lender then deducts its cost and fees and remits the balance to the company. The disadvantage of this type of financing, however, is the high interest typically charged.<\/p>\n
Handling the reporting for such loans often require some amount of dedicated time. Many lenders require that a transaction report be generated along with a batch of purchase orders or invoices pledged as collateral for the loan.\u00a0 The lender has the right to reject any individual pledged item, and then calculates a percentage of the value as the amount to loan.\u00a0 Ranging from 50% to 80%, you can request an \u201cadvance\u201d up to your credit limit, beyond which no more is available, and you must rely entirely upon your own devices to finance further transactions.<\/p>\n
Each transaction report also contains a list of money received against pledged items, so that the calculation of available credit remains fresh, and based upon remaining invoices that are not yet overdue.\u00a0 Government invoices are usually not accepted, and any new invoices from accounts that have outstanding invoices more than 60 days overdue are usually also exempted, as are invoices to concentrated customers who account for a significant percentage of the company\u2019s business.<\/p>\n
Asset-based financing is not cheap.\u00a0 Lenders often tack on charges for management of your account, for a \u201cfloat\u201d of cash to account for the number of days to clear payments received, and for a periodic audit of the company\u2019 accounts.\u00a0 Adding all of these often adds an additional 3-8% to the stated interest rate of the line of credit, sometimes making it one of the more expensive methods of finance.<\/p>\n
Finally, some asset-based lenders are \u201cfactors\u201d who actually purchase your invoices, hold back a portion of the proceeds to protect against future bad debts, then deduct their fees before remittance and remit a net amount, with the final amount to be remitted upon collection of the money owed by the customer to the factor.\u00a0 Factors redirect your customer\u2019s payment to the factor\u2019s postal lock box. You never see the cash collected, since the invoice is owned by the factor, no longer by you.<\/p>\n
There are many other forms of financing a small business.\u00a0 Let\u2019s explore some of them.<\/p>\n","protected":false},"excerpt":{"rendered":"
With help from JJ Richa The next logical step in our analysis of financing tools is to analyze asset-based lending, in which you pledge or assign your short term assets, such as accounts receivable or inventory, to the lender.\u00a0 Often, … Continue reading