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September 18, 2019 / By Jared Cohen

A Quick Look at Equipment Secured Lending

Equipment secured lending, equipment-based financing, or asset-based lending is a form of sourcing funds for a business that is secured by collateral. The financing option here can be either a business loan or line of credit, but one that is secured by equipment accounts receivable inventory, or any other property that the borrower owns. Typically, this is a commercial finance option, which means that it is not available to consumers but to businesses only. 

A startup business might need to source finances to meet its operational costs, while an already established company might need a loan or line of credit to ease its financial burdens, especially in case there is a delay in the payments receivable. Usually, a lending institution offers asset-based financing as the best alternative when a company is unable to show enough cash assets or cash flow to acquire an unsecured loan. This way, the lender can approve the funds based on the physical assets of the company as collateral.

Note that the terms and conditions of equipment secured lending depend on the value of the asset as well as the type of equipment presented as collateral. Generally, lending institutions prefer liquid-type collateral, such as securities and bonds, which can be readily converted to cash if the company fails to repay the loan in time. Financing on physical assets is usually considered to be riskier, which is why the loan amount may be much lower than the actual value of the equipment. Still, that can be a good option for businesses, which are looking to expand their operations, because they are more likely to be in a solid position to repay the amount as agreed.

The interest rates on equipment secured lending are also much lower than that on an unsecured loan or line of credit. This is because the lending body can recover most of the losses here if the borrowing company fails to meet the repayment terms. Yet again, the interest rates can vary widely depending upon the credit history of the company, the business cash flow, as well as the length of the loan period.

Small and medium scale companies with stable revenue and good value physical assets are the ones who generally go for asset-based lending. However, it can be an excellent option for large corporations as well to cover their short-term financial needs occasionally, such as for managing their employee salaries or for some extra raw material purchase.

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