Securing the right funding for your small business is crucial for growth and stability. Asset-based lending is one option for financing for businesses that have strong assets and need access to working capital. But is asset-based lending the right choice for your small business? Below we go over the pros and cons of this approach to help you make an informed decision.
What Is Asset-Based Lending?
Asset-based lending (ABL) is a type of business loan that is secured by using a company’s assets as collateral. These assets can include a variety of tangible and intangible items that have value, such as inventory, accounts receivable, equipment, or real estate.
Asset-based financing can be easier to qualify for compared to other small-business loan options. However, if the borrower defaults on the loan, the lender can seize and sell the assets to recover their money.
The Process of Asset-Based Lending
In order to better understand your business’s financial health, your lender will first evaluate your business’s financial information, including its assets, financial statements, and credit history. Next, based on a thorough asset evaluation, your lender will offer a loan amount. This amount is typically a percentage of the value of the collateral, known as the “advance rate”. Generally, liquid collateral such as certificates of deposit or securities are more valuable to a lender because they can be easily converted to cash if you default on your loan. Finally, your lender will also establish the terms of the loan, including the interest rate, repayment schedule, and any associated fees.
Pros and Cons of Asset-Based Lending
Pros
Access to quick capital. A primary advantage of asset-based lending is that it’s typically a quicker process than traditional loan approval. If your business needs funds urgently, such as covering unexpected expenses, this can be a significant advantage.
Flexible terms. Because the loan is secured by business assets, this type of lending could be a better fit for businesses that don’t meet the strict criteria of conventional loans. Asset-based lending offers more flexibility than traditional loans, which can be beneficial for businesses that have a shorter credit history or imperfect credit scores.
Lower interest rates. Because the collateral you provide reduces the lender’s risk, you’ll typically receive lower interest rates on asset-based loans compared to unsecured business loan options.
Flexible financing. Funds from asset-based loans aren’t typically restricted. They can be used for various purposes, such as financing growth initiatives, covering operational expenses, or managing cash flow gaps.
Cons
Risk of losing assets. If your business fails to repay the loan, your lender can seize and sell your business assets to repay the debt. If the assets you used as collateral hold strategic importance for your business operations, losing them could have adverse effects on your business.
A thorough and time-consuming process. A lender’s assessment of your assets can be time-consuming and may require professional appraisals, audits, and legal documentation. Furthermore, some of your business assets may not qualify for an asset-based loan. Lenders generally prefer tangible and sufficient assets, so items such as specialized goods, perishable inventory, and equipment with high depreciation rates typically aren’t accepted as collateral.
Costs and fees. While asset-based lending often comes with lower interest rates than other financing options, it’s important to consider other associated costs. Lenders can charge origination fees, appraisal fees, and ongoing monitoring fees, all of which can impact the overall cost of the loan.
Asset-based lending can be an effective tool for small businesses seeking access to capital, but the decision to pursue this type of lending should be made after careful consideration of your business’s assets, financial needs, and risk tolerance.
The success of professional services firms is often dependent upon a firm’s ability to deliver exceptional results for clients, but this goal is not without an element of risk. With the uncertainties and potential pitfalls of business, it’s essential that firms adopt a proactive approach to risk management. Read on to learn how embracing risk management can help companies safeguard against potential threats while also recognizing an opportunity for growth and success.
Strengthening Client Trust
Proper risk management practices emphasize a firm’s commitment to delivering consistent and reliable results. Clients are more likely to trust and choose a company that takes a proactive stance in reducing potential risks. This trust can translate into long-term partnerships and increases client loyalty.
Improving Decision Making
Effective risk management involves collecting and analyzing data to make informed decisions. This data-driven approach helps firms to identify worthwhile opportunities and make key decisions that drive growth. It minimizes the likelihood of making impulsive, uninformed moves that could negatively affect the company’s future.
Fostering Innovation
Risk management prompts companies to explore innovative solutions to address potential challenges, and it fosters a company culture of continuous improvement. When firms embrace innovation, they are more likely to come up with new service offerings, which provides a competitive edge in the market.
Enhancing Operational Efficiency
By identifying and reducing operational risks, companies can improve their internal operations, streamline workflows, and optimize resources. This increased efficiency can lead to reduced costs as well as a boost in overall productivity, which means firms are better positioned to effectively handle more clients and projects.
Navigating Market Volatility
Companies that embrace risk management and have a contingency plan in place are better equipped to navigate market volatility. These firms are able to adapt quickly to changing circumstances and maintain stability while taking advantage of emerging opportunities.
Attracting Top Talent
Skilled professionals want a workplace that fosters stability and growth. A strong risk management culture signifies a well-organized and responsible firm, making it an attractive workplace for top-tier talent.
Implementing Effective Risk Management Strategies
To fully benefit from risk management opportunities, professional services firms should think about adopt the strategies discussed below.
Assess and Identify Risks
In order to identify both potential threats and potential opportunities within the company, a thorough risk assessment should be conducted. Understand how various risks can interact and how they could impact the business.
Make a Plan
Develop strong risk reduction plans that address any identified risks. Assign responsibilities, establish timelines, and allocate resources for effective risk management.
Monitor Risks
Companies should use data analytics to continuously monitor and evaluate risks, and employ real-time data to make quick and informed decisions.
Encourage a Risk-Awareness Culture
Inspire a company-wide risk-awareness culture by training employees at all levels to recognize and report risks immediately.
Review and Adapt
An ability to be flexible and adapt to an evolving business landscape is crucial to maintaining a successful risk management program. For this reason, professional services firms should regularly review risk management strategies and make any necessary adjustments.
The Small Business Administration (SBA) recently changed the rules that apply to both the 7(a) and 504 loan programs. The goal is to streamline the loan application process, broaden the amount and variety of lenders, and relax regulations in order to reach more small businesses, particularly those in underserved communities. Below we’ll go over the recent changes to SBA loan programs.
SBA Loan Programs
The SBA is a lender of two small business loans. The most popular loan is the 7(a) loan, which can be used for real estate, equipment, acquisitions, and other working capital. It has a maximum borrowing limit of $5 million. The 504 loan is the other loan program offered by the SBA, and it is generally used for real estate or land loans, with fixed interest rates and maturity up to 25 years. It has a maximum borrowing limit of $5.5 million.
Expanding Approved Lenders
Prior to the Covid-era Paycheck Protection Program (PPP), the SBA had limited the number of approved SBA lenders to a select handful. This limit was lifted considerably with the PPP program, and the new rules do away with a cap on the number of approved lenders altogether. The goal is to increase the number of loans distributed and reduce the timeline of loan applications.
New Criteria
The SBA is simplifying the evaluation process for borrowers by removing some criteria. Previously, multiple factors were considered when assessing potential borrowers, including the character and reputation of the applicant, experience and depth of management, projected cash flow and future prospects, invested equity, and value of collateral. However, the new rules look at only the applicant’s credit report, cash flow, and equity or collateral. Removing “character and reputation” from the list of criteria helps to eliminate any individual bias in the loan process.
The new rules also allow borrowers to use 7(a) loan proceeds to fund partial changes in the ownership of the business. In the past, a 7(a) loan could only be used to fund a full change in ownership. This move grants borrowers more flexibility to restructure the business.
Finally, the SBA is implementing new technology to figure borrower eligibility. This should help curtail the burden on SBA lenders and simplify the process in order to boost lending.
New Determining Authority
When a small business 7(a) and 504 loan application or modification request is denied, either the Director of the Office of Financial Assistance or the Director’s designee(s) are authorized to make the final decision on reconsideration. Previously, only the Director of the Office of Financial Assistance had this authority. This change is to help enact fair and timely loan reconsiderations.
No More “Credit Elsewhere” Test
Finally, the “credit elsewhere analysis” that was a required component of the SBA loan process is reduced to a “check the box” with no need for corresponding paperwork. This was a step in the process that proved all other possible sources of funding had been exhausted, justifying the need to obtain SBA financing.
Whether anticipated or unexpected, small businesses in every industry face a lot of challenges. Both veteran and new businesses need to be prepared, flexible, and adaptable in order to succeed. Here are the most significant business challenges in 2023.
Economic Uncertainty
The economy has been wavering for some time now, and it appears that we’re on course for the same in 2023. This makes long-term planning a difficult task. When the economy is more balanced, business owners are equipped to make better investments and more informed decisions. However, with rising inflation, as we have now, small businesses face the possibility of stalled growth. It will be imperative for small businesses to budget costs and manage their operations efficiently.
Inflation and Rising Costs
Small businesses are not immune to the effects of inflation. Increasing costs of raw materials, shipping, and energy can all influence the profitability of a small business. Whereas larger companies might be able to pass these costs onto customers, small businesses typically don’t have the pricing power to do so. To attend to this challenge, small businesses may need to reduce costs through more efficient operations, renegotiating contracts with suppliers, or exploring new revenue streams.
Hiring and Retaining Labor
Most industries have experienced a labor shortage since the onset of the Covid-19 pandemic. The inability to find and retain qualified employees could impact the ability of small businesses to deliver goods and services or focus efforts on growth. Small business owners should think about offering more competitive wages and benefits, improving working conditions, and investing in automation to help reduce the work load of employees.
Competition
Competition isn’t a new challenge to small businesses, but the pandemic accelerated the shift toward e-commerce and digital channels. It’s now up to small businesses to find a way to stand out from the crowd in order to retain existing clients and attract new business. They might want to consider investing in digital marketing and advertising, improving their website and social media outreach, and offering products or services that set them apart from competitors.
Funding
Securing funding will be difficult this year as lending firms await to see what the economy does. On the positive side, this is an opportunity for small businesses to stand out among the competition. Business leaders will need to come up with creative pitches that prove the value their company offers.
Professional services firms often face the challenge of distinguishing themselves in a highly competitive market. Developing a strong brand is a surefire way to stand out among the crowd. A well-crafted brand development strategy can help your firm establish a clear identity, communicate your company values to potential clients, and build trust and loyalty among existing clients. Read on to learn how to create a brand development strategy for your firm.
Research Your Target Market
Conduct a thorough analysis of your target market, including clients, competitors, and industry trends. This should inform your firm’s overall brand positioning. You should fully understand your target demographic to the point where you can anticipate their wants and needs, thereby creating purposeful messaging that will ring true. Furthermore, research will help you determine strengths and weaknesses in how your business and brand are regarded.
Develop Your Brand Positioning
Aim to develop a brand messaging platform—or market position—that clearly communicates what sets your firm apart from competition as well as key benefits to potential clients within your target audience. Why should they choose to work with you? This messaging should be consistent across all media communications, including your firm’s website, social media, email marketing, and other promotional materials.
Create a Positioning Statement
Typically three to five sentences, a positioning statement conveys the core of your brand positioning. It should be ambitious so your firm has goals to work toward, but remember that you will need to deliver on promises.
Establish a Name, Logo and Slogan
If your business is already up and running, there’s usually no need to change your firm’s name. However, if you feel you’ve outgrown your original name or you’re going through a merger, a name change might be in order. Either way, you want to develop a visual identity that aligns with your brand positioning and messaging. Along with a slogan, this can include a logo, color palette, and typography that are distinctive and memorable, and that can be easily recognized by its target audience. Keep in mind that these are symbols of your brand that serve as a way to communicate with your audience and potential clients. Therefore, they should be designed with your target market in mind.
Create a Content Marketing Strategy
Visibility and reputation drive brand strength, and effective content marketing has the potential to increase both. Aim to create quality content that reflects your brand values and goals. When done correctly, this will make your brand relevant to your target market and boost your firm to a position of authority in your niche.
Get Involved and Build Relationships
Building trust and credibility with both existing and potential clients is an important piece of brand development strategy. This can be achieved through a variety of means, including:
Building a robust online presence
Publishing thought leadership content
Participating in industry events and conferences
Effectively communicating in a timely and responsive manner
Providing ongoing follow-up
Implement Your Brand Development Strategy
Creating a brand development is one thing, but consistently applying it is another. Once created, a brand development strategy all too often falls off the priority list. The strategy needs to be put into play if you want to grow your brand. Not only that, but it’s an ongoing effort that requires continuous monitoring, evaluation, and adjustment. Remember to conduct regular brand audits, track brand visibility and perception, and gather feedback from clients and employees. And as the market and industry evolve, your firm’s brand should be adapted accordingly.
Veterinary practices that provide award-winning services don’t hesitate on the small stuff – the over-and-beyond touches that make them stand out and keep clients coming back. The customer service tips below might not be groundbreaking, but when implemented on a regular basis, you’ll create positive experiences and gain repeat clients, who will likely spread the word to their friends and communities.
First Impressions and Communication
A common grievance reported to veterinary state medical boards is lack of communication. To avoid this fate, make a good impression when a client visits for the first time by:
Introducing them to the team that will be caring for their pet
Signing them up for any means you’ve established for clients to communicate with you, such as an online portal
Offering them a welcome packet that includes details about your clinic, services offered, emergency contact information, where to find additional information about pet care, and a welcome letter
Create a Loyalty Rewards Program
Clients who follow your suggestions, properly care for their pets, and continue to bring their business to you are deserving of some perks, and a loyalty reward program is just the ticket. Whether they can be used for product or service discounts (or both) is up to you, but a loyalty program can be an effective vehicle in retaining clients.
Follow Up in a Meaningful Way
If you want a client to feel especially cared for, be sure to follow up on their pet after they’ve come in for an illness or procedure. At the minimum, follow up with a standard phone call one to three days after the visit, depending on the procedure. This also keeps you informed of the pet’s progress and client compliance of aftercare. If you want to add an extra personal touch, send the client a “get well soon” chew toy or catnip mouse for their pet.
Take Notes
Just as we appreciate when doctors remember something specific to us, clients appreciate when their vet remembers something specific to their pet, so take note of anything that stands out during routine check-ups. Do they like to be scratched behind the ears or on the belly? Is there a certain treat or toy they love? Jotting notes in a patients’ records about their likes and dislikes can help you create a personalized experience for your clients.
Create a Social Media Presence
Social media is a powerful tool that can help personalize your practice and communicate with your community. Share information like helpful tips for pet owners and any changes to hours or services. You can also post pictures of pets (provided the client has signed a photo release form), and encourage pet owners to post their own pictures and tag your practice.
Make a Memorial Donation
Establish a way to demonstrate your sympathy when a pet dies. While most practices send sympathy cards, you can go above and beyond by making a small donation to an animal charity fund in the pet’s name. You could also have a tree or flower planted in the pet’s name.
Implement a Referral Program
Referral programs can include simply sending a thank-you card to a client who sent a referral your way, or it can be as involved as sending a small gift of thanks for the business sent your way. You could provide new clients with a $10 discount and post a $10 credit to the referring client’s account. If you want to take it up a notch, you could give a different gift each time for repeat referrals to keep the program updated and worthwhile to the client.
