Almost every business will have a need to access borrowed capital at some stage during its business cycle. And in today’s video, we’re going to look at the difference between cash flow lending and asset based lending, also known as ABL. Asset based loans allow you to access funds by borrowing against the various assets you already hold on your balance sheet, including your accounts receivable ledger. Whilst cash flow loans provide funding based on your estimated future revenue and income and do not require asset backed security. Both have their advantages and downsides, so which type of finance is going to be best for your business? A cash flow based loan might be right for your business if you have good GP margins and sell your products and services on credit terms to your customers. Cash flow loans are commonly used by companies in the marketing, software, wholesale, manufacturing and e-commerce industries. However, it’s important to realise that cash flow loans usually carry a higher cost of finance than asset based finance as there is much higher risk for the financier when lending – that isn’t backed by physical asset or assets. If your business has a bad month, for example, and is unable to make a payment, there’s nothing for the financier to fall back on. So carefully consider if cash flow lending is right for your circumstances. Asset based lending is most appropriate for businesses with strong balance sheets that need to access a credit facility, and that they have unencumbered assets on their balance sheet. For example, your business may be approved for $150,000 asset based loan based on 75% of the value of your business’s assets, such as plant, machinery and vehicles. This could be combined with a cash flow facility of $250,000 secured against your accounts receivable ledger. Under this model, you have access to more funds as well as a variable proportion being your unpaid invoices that increase as your sales increase each month, and your invoicing volume increases. Invoice finance is an increasingly common funding solution for growing businesses. It’s low touch, approvals are quick, and the more you sell, the more funding your business can access each month. So don’t let a lack of cash flow hold your business back, use your accounts receivable ledger and unlock tomorrow’s cash flow today with TIM Finance.