Give Us a Call 24/7 to Speak to a Loan Specialist: (866) 526-0238
Give Us a Call 24/7 to Speak to a Loan Specialist: (866) 526-0238

Asset Based Loans Using Real Estate as Collateral

ABLs Using Real Estate

Using both personal real estate and commercial real estate as the basis to obtain a business loan may be an appealing option to small business owners who have equity in their home or commercial land or building, and are looking to use that equity to obtain financing for their company. With the number of commercial buildings consistently increasing, a business owner may look to leverage that real estate with a 2nd or 3rd lien to obtain a line-of-credit. The Commercial Buildings Energy Consumption Surveys latest report on commercial activity shows there are at least 5,600,000 commercial buildings in the United States in 2012 — which is an increase of around 14% over the past decade. With the increase in the number of commercial buildings (many owned by small businesses using the space as owner-user properties) a business owner can use the net worth of the building or land to obtain financing that wouldn’t be provided by conventional lenders.

What is Asset Based Lending?

Asset based lending (ABL) is the practice providing a business financing based upon monetizing the company’s balance sheet. If a company has assets such as accounts receivables, real estate, inventory, equipment and machinery, they can use them as collateral to obtain financing. The most common facility used for asset based financing is a line-of-credit, although asset based term loans are common. Aside from lines of credit and term loans, other forms of asset-based lending includes merchant cash advances, factoring, equipment leasing and invoice financing. When the asset based lender provides funding to the company, they will then place a lien (UCC-1) on the asset.

What is Collateral?

Collateral is an asset that any lender can use to secure a small business loan. When the lender provides funding to the small business, they will then place a UCC-1 lien on the business or personal asset, and if the borrower fails to repay the loan, the lender can then move forward with seizing the collateral to help recoup their losses. By reducing the risk exposure to the lender, it will reflect in the rates provided to the borrower. Secured business lending using collateral tends to have lower rates than unsecured business financing.

What Kind of Real Estate Can Be Used As Collateral?

Virtually any commercial property can be used to secure asset based based financing. While traditional lender may place a lien on commercial real estate when a company applies for a term loan, they rarely look to use personal real estate to secure financing (although they may make a small business owner sign a personal guarantee. If they do sign the personal guarantee, they are potentially pledging all their personal asset, including their own personal real estate). Asset based lenders, on the other hand, will look to secure loans using a business owner’s personal house, property and/or land. Lenders that are willing to make asset based loans using real estate understand that the borrower most likely already has a mortgage on their homes, so they are willing to take 2nd positions subordinate to the mortgage lender, and still provide financing for up to 65 loan-to-value.

What Kind of Financing is Offered When Using Real Estate as Collateral?

There are a number of financing options available for company’s that are willing to unlock the equity in their real estate. From the top banks on down to subprime asset based lenders, there are funding options structured as a term loan, a line of credit, or ACH financing. Most traditional bank business lenders will look to use commercial real estate strictly as collateral for a term loan. Alternative asset based lenders will look to use the collateral along with the business’s cash-flow to provide lines-of-credit. Subprime asset based lenders will usually structure the financing much like a merchant cash advance, in that they may require daily or weekly repayments directly from the company’s bank accounts via ACH. Rates tend to be higher than traditional financing, but since there is real estate being used to secure the loan, asset based loans using real estate tend to have lower rates than high-interest cash advance.

What are the Rates and Terms

Rates and terms of asset based loan vary greatly depending upon the type and quality of collateral being pledged. Accounts receivables generally have a loan-to-value of around 80%, while inventory and equipment tend to have an LTV of around 50%. Asset based loans using real estate can have up to 65% LTV even in 2nd and 3rd positions. Rates also vary greatly. Traditional lenders that offers asset based loans have rates in the single digits, whereas subprime asset based funding companies can have rates that can go as high as 20%. Terms can range anywhere from 1 year on up to 5 years, although 1 to 3 years is most common.

What is the Process of Securing an Asset Based Loan?

The process of getting an asset based loan varies depending upon the lender. If you’re looking for more traditional asset based financing, you will need to provide:

  • Application
  • 3 years tax returns
  • 3 years income statements (including year-to-date)
  • 3 years balance sheets (including year-to-date)
  • A/R and A/P aging schedules
  • Schedule of liabilities
  • Appraisals of collateral

If you are looking for subprime asset based lending using either commercial real estate or personal land, real estate or other property, you will need to provide:

  • Credit application
  • Bank statements
  • Collateral form
  • BPO and Title report

Once all documents are provided to the lenders, you can expect the due diligence and underwriting process to take anywhere from 1-4 weeks.

Get an Asset Based Loan

Who We Are

GUD Capital is a nationally recognized leader in the financing industry for providing the best business lending solutions available to small and mid-sized businesses. We leverage our network of 4,000 competing commercial lenders to provide your business the largest selection of commercial financing options.

Get Started

Recent Posts

Staffing Company Working Capital: Business Loans for Staffing Businesses
May 16, 2018
Chinese Restaurant Loans: Financing for Chinese Dining and Take-out Restaurants
May 14, 2018
Thai Restaurant Loans: Financing Options for Restaurants Serving Thai Cuisine
April 26, 2018
Warehouse & Storage Facility Loans: Financing for Warehouses & Self-Storage Companies
April 25, 2018
Subcontractor Business Loans: Working Capital for Subcontractors
April 10, 2018
Jewelry Store Business Loans: Funding Options For Jewelers
April 4, 2018
Los Angeles Business Loans: Financing Options for LA Companies
March 22, 2018
Dance Studio Business Loans: Financing For Dance Schools & Teachers
March 5, 2018
Professional Service Industry Business Loans: Financing for Professional & Business Services
February 25, 2018
Medical Professional Working Capital: Operating Capital For Doctors Offices
February 1, 2018
Hospitality Industry Loans: Financing Options For Hospitality Companies
January 30, 2018
Retail Store Loans With Bad Credit: Poor Credit Retailer Financing
January 22, 2018
Appliance Store Business Loans: Funding Options for Appliance Shops
January 21, 2018
Nonprofit Business Loans: Working Capital for Non-profit Companies and Organizations
January 17, 2018
Manufacturing Working Capital: Operating Capital for Manufacturers
January 3, 2018
Timber, Lumber & Wood Industry Business Loans
January 1, 2018
Houston Business Loans: Working Capital for Houston Small Businesses
December 7, 2017
Construction Working Capital: Construction & Contractor Working Capital
December 1, 2017
Aviation Industry Loans: Financing for Aviation Companies
November 28, 2017
Entertainment Industry Loans: Capital For Film & Entertainment Companies
November 27, 2017
Vegan & Vegetarian Restaurant Loans
November 21, 2017
Barber Shop Loans: Financing & Working Capital For Barbers
November 15, 2017
10 Best Merchant Cash Advance Tips: How to Get the Best Business Cash Advance
October 11, 2017
High Risk Working Capital: Cash Flow for High Risk Small Businesses
October 10, 2017
Alternative Business Loans With Bad Credit: Nontraditional Bad Credit Lenders
October 5, 2017