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As more funding options become available, business owners are exploring debt free financing programs. Merchant cash advances and asset based lending are among the two most prevalent debt free financing structures available to entrepreneurs, but the two are lightyears apart in what they truly offer.
Merchant Cash Advances Have Strings Attached
Merchant cash advances are frequently promoted as debt free financing. For the most part, this is true. Merchant cash advances are structured around future receivables, so no debt is directly placed on the borrower. Merchant cash advances are also sold as being much more flexible than other financing programs, which isn’t quite accurate. Merchant cash advances, because they do not use collateral, frequently have much higher interest rates than even bank loans. Additionally, while they claim to offer flexibility with payments, the terms are designed to create an inordinate amount of interest on the balance owed. When business owners reach the end of the terms in the agreement, merchant cash advances leave entrepreneurs with an almost insurmountable balance to pay off. Light sales periods only put business owners farther from paying off merchant cash advances. So, while merchant cash advances do provide debt free financing, the strings attached can often do more harm than good in the long run.
Debt Free Financing Through Asset Based Lending
Asset based lending provides debt free financing structured around things that actually exist, instead of future sales. Asset based lending uses the value of property, vehicles, equipment, receivables, and more to create a revolving business line of credit. Business owners pay on what they use, instead of having to pay off a large lump sum. Asset based lending is treated just like any other revolving line of credit in that the amount spent gets replenished from payments, giving businesses an ongoing source of debt free financing. What’s more, the amount of debt free financing through asset based lending grows alongside the business. New equipment, an increase in receivables, and more allow the line of credit to be revised with a greater spending limit. Also, asset based lending does not have a specific designation, so businesses can use it for advertising, purchasing supplies, acquiring new equipment, commercial real estate transactions, and even paying down existing debt.
Get The Debt Free Financing Your Business Needs
At CNH Finance, we believe businesses should have a source of working capital that promotes growth and success. Contact our offices today to learn more about how asset based lending can work for you.