In the first quarter of 2018, 35.2 percent of small businesses reported being able to secure financing from a bank. This compares to just 32.2 percent in the first quarter of 2017. Furthermore, 25.4 percent of small businesses said that they could get asset-based financing. These figures were obtained through the Private Capital Access Index (PCA Index), and it is a sign that smaller companies are in a stronger financial position than they were a year ago.
A small business is defined as one that makes less than $5 million in revenue per year. Middle market companies are defined as those making between $5 million and $100 million per year. The PCA Index for both categories was the strongest in the first quarter of 2018 since it was developed in 2012. When businesses have access to capital, they have an increased chance of both growing and sustaining their growth. Furthermore, smaller companies are obtaining loans based on assets as opposed to factoring.
Asset-based loans use real estate, equipment or other items as collateral. They tend to have better terms, and the fact that more companies are moving toward them as opposed to factoring loans shows that they are growing stronger. In the first quarter of 2018, 53 percent of businesses said that they had sufficient cash flow.
Asset-based lending may be effective for those looking to secure financing for commercial development. For instance, a person may use another property as collateral to reduce the odds that a lender won't be repaid. Developers may also use equipment, an investment portfolio or anything else of value to guarantee that a loan will be repaid. An attorney may review the terms of a loan to be sure that a borrower understands the possible consequences of not repaying it.