Asset Based Loan - Do You Know The Basics Of An Asset Based Loan?
When a business or an individual uses an asset as collateral for a loan, it is often referred to as an "asset based loan". Since the assets are used to guarantee the loan, lender tends to be indifferent concerning the credit rating of the borrower; the lender is concerned only with quality of the assets used as collateral.
These asset based loans are also know as "non-recourse loans". These loans do not have a personal or business liability attached beyond the asset used as collateral. Failure to repay the loan will result only in loss of the collateral.
These loans can also be used for any personal or business purpose. The only exception is that the purchase of securities on a margin account is prohibited.
What factors determine the ratio of loan value? For an asset based loan, this is determined by the amount and quality of the collateral. Because there are no credit checks or income verification required for an asset based loan, the application process is quick and simple.
* Complete the application with required information, stating the amount of loan requested and the collateral to be provided.
* Confirm ownership of the assets being used as collateral.
* After examination of the loan application, lender determines terms based on collateral
* Documents are executed
* Assets are delivered or secured as required by the loan, payment plan is formalized.
* Funds from the asset based loan are delivered within 3 to 5 business days.
When payments on the asset based loan are complete, the loan is paid off and unencumbered ownership of the collateral is reinstated to the borrower. If permitted by the terms of the loan, the borrower can refinance.
The length of an asset based loan is variable, usually from 3 to 10 years. During that period of time, the borrower can arrange for other forms of financing.
If you do opt for an asset based loan, you must understand the terms of loan and the consequences of non-payment.
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