Finance: Five reasons to consider an asset loan

1. Individuals with complicated financials. Aviation lenders must be able to clearly see the sources and timing of cash flow to understand a borrower’s debt service side of the equation in a typical credit-based loan. Having revenue streams from multiple assets often doesn’t provide such a clear understanding. A person possessing multiple assets, i.e., businesses generating revenue, might find asset-based loans a good choice.
   
   For example, individuals with real estate holdings usually hold them in multiple entities, complicating matters from a lender’s viewpoint. Car dealers are another example. Regardless of how well-established or profitable a car dealer is, the nature of that business generally has the person highly leveraged. On paper, to a bank, the borrower looks like he or she is carrying a lot of debt. Both examples tend to make a lot of banks hesitant to issue credit-based loans.
2. Individuals who derive income from multiple businesses of which they may have minority or partial ownership. Conventional aircraft financiers tend to require those businesses as a guarantor on the loan. As a partial owner, you may not be able to comply with that request.
3. Other cases include instances where a person cannot provide business recourse. An asset-based loan typically isn’t going to require business recourse.
4. Serial entrepreneurs, or mezzanine-type financiers, who generate revenue in an uneven fashion. In other words, year-to-year their income may look sporadic, but over a three- or five-year period it has a consistent arc. Because a project has, say, a three-year timeline the amount of debt carried in the first two years may be high, but the third year could be profitable. If lenders are looking at financials a year at a time, they would reject the financials, so an asset-based loan is the best bet.
5. People with a complicated tax and estate planning structure whose income might derive from trusts. Retired people can fall into this category, too. If you don’t have traditional cash flow coming through, that’s going to be problematic. Hence, it’s worth it to consider an asset-based loan.

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