What is an Asset Secured Loan and How Does it Work?
Simply put, an asset secured loan allows a business to access the cash tied up in its company assets. This can be through physical assets such as property, stock or equipment. Alternatively there is a lesser known form of asset secured loan, enabling companies to use their confirmed orders, purchase orders or a confirmed inflow of funds. In this article we are going to focus on how business owners can unlock working capital through confirmed funds and how this can help bridge a cash flow gap in their business.
How does it work?
This type of asset secured loan is a short term finance solution which is in essence, based on a single transaction. This type of finance works perfectly for businesses that have a confirmed order from their customer, but haven’t got the upfront working capital to purchase the necessary materials to fulfil the order. An asset secured loan provides that working capital upfront, allowing the business to start working on the order.
Usually a lender will look at the confirmed order/ purchase order and the end customer’s transaction history together with their credit rating.. If the customer meets the desired criteria then the lender can typically provide up to 80% of the value of the order. The borrowing is then repaid when the customer pays the invoice in full.. The lender will charge a percentage fee for each day the funds are out. Once the customer has paid then the lender will deduct their fee from the total balance paid.
This type of facility runs within the payment terms that have been set for the customer. So if you have a confirmed order to be paid in 60 days then the facility will be structured on that basis. Different lenders will structure the costs in different ways. As an example, a business agrees credit terms of60 days but their customer pays in 30days, some lenders only charge for the time the funds were in use. There are however many types of lender and some will still expect to receive the fee for the funds that are being used for the duration of the 60 days, despite being repaid early. Lenders will also differ in how they structure the repayments, some will accumulate the daily fee and deduct from the final customer payment, some charge daily and others may charge monthly, depending upon how long the funds are utilised..
As one of the UK’s leading and self funding, short term finance providers, Catalyst Finance help a wide range of UK businesses bridge cash flow gaps. We provide purchase order finance and confirmed order finance for UK businesses requiring facilities of £50k to £1m. We also provide Rebate Finance, a variation of this type of facility. Businesses that have a confirmed influx of funds such as government grants and tax rebates, can use them to unlock funding for their business. Rebate Finance works in the same way as the confirmed order/purchase order finance, where a daily fee is applied and then deducted when the confirmed inflow of funds arrives.