WHAT IS AN ASSET BASED LOAN?
An asset-based loan is a loan that is secured by a physical asset. This means that the borrower who is looking for the loan is not as big of a factor as the asset itself. For Rubicon Mortgage Fund, we generally lend up to 60% of the value of a physical asset. Meaning, if a property is valued at $1,000,000 – Rubicon will potentially lend up to 60% of that, or $600,000. This allows a person who has wealth tied up in real estate to take a loan against their property and receive cash they need quickly.
• Moreover, loans that are asset-based rely on the value of the property as collateral for the loan. This allows people who may not otherwise qualify for funding to use their property value as collateral. Asset-based loans can be used for real estate transactions that may have valuable assets but limited cash flow or credit history. These types of loans can provide investors with access to capital by leveraging their existing assets; such as a home. The amount of the loan typically depends on the value of the assets being used as collateral and is held in first position.
Asset-Based Private Money Lending makes sense when:
• Your current loan is coming due and you are unable to refinance.
• Unable to qualify for a conventional loan.
• Buying out partner/spouse.
• Cash out for property improvements.
• You need money fast for your transaction.
Key Characteristics of Asset-Based Loans:
1. Collateral-Driven: The loan amount is directly tied to the value of the assets pledged as collateral. The more valuable the assets, the larger the loan the borrower may secure.
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2. Flexible Financing: Asset Based Loans are often used by businesses to improve cash flow, especially during times of financial difficulty or when access to other forms of credit is limited.
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3. Interest Rates and Terms: Interest rates on asset-based loans can vary depending on the risk associated with the assets and the borrower’s creditworthiness. Typically, these loans may have higher interest rates compared to traditional loans due to the higher risk for the lender.
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4. Loan Monitoring: Lenders often require regular reporting on the value of the collateral, such as inventory levels and accounts receivable aging, to ensure the loan remains adequately secured.
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5. Uses: Companies might use asset-based loans to fund day-to-day operations, purchase inventory, finance acquisitions, or manage seasonal fluctuations in revenue.
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Asset-based lending is especially common among businesses with significant tangible assets but might not have a strong credit rating or cash flow to qualify for unsecured loans or when the simplicity and transaction speed of a Private Money Lender makes more sense than a loan from a traditional lender.
Lending for:
• 1031 Exchange
• Construction Financing
• Restructuring Debt
• Investment Acquisition
• Loans to Trusts
• Vacant Properties
