Overview of asset-based lending

There are many aspiring business owners in the Edmund, Oklahoma area and there are likely many more people throughout the country who have some tie to Oklahoma and are trying to start or grow a business venture.

As with anything, though, developing a business requires capital. Unless a business owner is already independently wealthy, he or she will likely not have all the resources he or she needs to start, grow or maintain his or her business and will have look to outside sources for help.

Asset-based lending is one means a business owner can use to raise capital for his or her business. It is a form of debt as opposed to an investment offer. However, one advantage to asset-based lending is that it often comes with lower interest rates than an unsecured business loan or line of credit.

In an asset-based loan, the bank or other lender takes out a security interest in some property the business owns. While this property can include more conventional things like a piece of commercial real estate or a savings account, lenders and owners have some leeway to get creative. For instance, a lender may be willing to take out a security interest in a business’s outstanding accounts receivable, effectively using money the business does not yet have as collateral for a loan. The use of a collateral allows the lender to give a more favorable loan or line of credit terms to its business customer.

As with any other type of business deal, an asset-based loan raises important legal issues that are often best discussed with an attorney. For instance, it is important to get an accurate value on the business’s proposed collateral, and doing so may involve both financial and legal questions. Also, as with any other contract, both parties need to fully understand their legal rights and obligations under the contract’s terms.

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Teague & Wetsel, PLLC
1741 West 33rd Street, Suite 120
Edmond, OK 73013

Telephone: 405-285-9200
Fax: 405-509-2362

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