Understanding Asset-Based Loans
Asset-based loans, also known as asset utilization loans, allow you to use your assets as income. This type of loan is a great solution for retirees with a small fixed income, new businesses, or established companies that need to maintain a high cash flow.
How It Works
With an asset-based loan, you borrow against your assets. The loan amount, or borrowing base, is determined based on a percentage of the assets’ value. For example, you can use 70% of your retirement and investment accounts and 100% of liquid assets, like the value of your bank accounts.
Calculating Your Loan
To calculate your loan, first determine the total value of your available assets. Then, divide the total by either 5, 7, or 10 years, depending on the loan program. For instance, if you have $600,000 in liquid assets and your total mortgage payment is $10,000 per month, you would qualify since you have 60 months’ worth of assets.
Benefits and Risks
The main benefit of an asset-based loan is that it allows you to use assets you already have, regardless of your current financial status. This means your current income won’t be a factor for loan approval. However, keep in mind that asset-based loans typically have higher interest rates.
Applying for an Asset-Based Loan
To apply for an asset-based loan, you’ll need to identify the assets you’ll use to qualify and submit any requested documentation. After an initial review, the lender will present you with a preview offer. Once your assets are fully audited, you’ll receive your approval and funding for your loan.
What Can Be Used as an Asset?
Liquid assets that can be used as collateral include checking accounts, savings accounts, certificates of deposit (CDs), money market accounts, mutual funds, stocks, and bonds. These assets must be easily convertible into cash.
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