Did you know that loans are becoming harder to apply for? Thanks to the far-reaching effects of the pandemic, traditional loans and lines of credit are becoming increasingly difficult to come by.
However, this doesn’t mean that there aren’t still financing solutions out there if you know where to look, and what to look for.
One example of this is asset based lending. Asset based loans can be used for a variety of financing needs. Such as mortgages, car loans, business loans, and more.
These types of loans also have a number of advantages over other loan types. However, before you apply for an asset based loan, it’s crucial that you understand how these work so that you make a savvy financial choice.
Want to learn more about asset based financing? Here at Shearwater, we specialize in asset based loans, so keep reading as we share our insights into these loan types.
How Asset Based Lending Works
Asset based lending is a common lending option that uses the item purchased with the loan as collateral.
Mortgages and car loans are examples of asset based financing. When you apply for the loan, the lender used the vehicle or property you are purchasing as their security against the debt.
Should you default on the loan, the lender is then entitled to repossess the asset which you purchased using the loan.
These types of asset based loans can be taken out by consumers or businesses for financing asset purchases.
Additionally, for business looking to upgrade equipment using asset based financing. They can secure additional funds by pledging an asset they already own, such as real estate.
Because of the enhanced security for the lender, asset based loans are typically simple interest loans. They generally have fixed terms and fixed rates.
What Are the Terms on an Asset Based Loan?
The terms on asset based loans can vary widely, depending on what type of asset is underpinning the loan.
For example, asset based financing for a yacht can have terms of between 5 and 20 years.
If you have ever taken out a vehicle loan, then you’ll probably know that the terms on auto loans are anywhere between 3-6 years.
Be aware that the exact terms you receive will depend on your lender. For example, here at Shearwater, we specialize in flexible financing options for our clients. Therefore, when working with us, you may find that your terms can vary from these industry averages.
The Advantages of an Asset Based Loan
Now that you know how asset based loans work, let’s take a look at some of their advantages.
Firstly, asset based loans do not require extensive credit checks. Meaning they are much quicker to close.
Unsecured loans give lenders much less security should you default on your payments. If you have a good credit rating, debt to income ratio, income, and net worth, you might be eligible for very reasonable rates of interest on asset based loans.
Asset based loans are also simpler to understand. This is because their underwritings are less involved than with unsecured debt. Understanding your loan’s small print is key to managing it wisely, which makes this an important benefit.
Additionally, providing you find the right lender, you may find that asset based loans are relatively simple to secure.
Potential Cons of Asset Based Financing
Although asset based financing can offer a number of advantages, there are some potential cons as well.
Firstly, there is the obvious caveat that if you default on your loan, you will lose your asset. What’s more, while the equity in it will remain yours, foreclosure fees can cut into this as well. Because of this, you should only take out asset based loans if you are sure that you can meet the repayments.
However, be aware that in this situation, having an unsecured loan might not be much better. If you default on an unsecured loan, this can result in wage garnishments and legal costs.
Another disadvantage to some asset based loans is reporting requirements. For example, if you take out an aircraft or yacht loan, your business will likely need to report on its usage and maintenance to the lender regularly.
Tip: If you feel that an asset based loan is not optimal for you, you can also consider applying for a limited recourse loan, something we offer here at Shearwater.
What Can Asset Based Loans Be Used For?
As mentioned above, asset based loans are common forms of financing for property and vehicles and can be used to secure financing on assets such as real estate, yachts, planes, equipment, and more.
Basically put, if what you wish to purchase is a tangible asset, you will likely be able to find an asset based loan solution if you know where to look.
Are You Looking for a Trustworthy Asset Based Lender?
As you can see, asset based lending can be an advantageous credit solution. These loans typically have simple terms and can be secured quickly.
Are you considering an asset based loan for an upcoming asset purchase? If so, we can help.
Because Shearwater acts as a direct lender, we are not restricted by the regulations that banks and larger financial institutions have to comply with. Because of this, we can offer our clients tailored solutions that are customized to their credit needs.
What’s more, we cater to markets all over the globe. No matter your jurisdiction, we can facilitate your financing needs.
Would you like to find out how we can help you obtain a customized financing solution? Call us, and we will be happy to discuss your requirements.