The loan qualification pre-requisites of an asset reconstruction company

When you hear the words financing and lending, anybody who isn’t the neighborhood investment banker is bound to scratch his head in confusion. To a layman, the two words may mean the same.

But there is definitely a glaring difference between the two terms in question. 

Let’s break down each of these terms to their bare essentials in order to grasp the concepts as well as the difference

 Two types of loans are exigent:

• Secured loan- A loan which is acquired based on the credibility and value of the asset, pledged as collateral and not based on the company in question
• Unsecured loan- Loan that is provided without specific collateral but the financing company can stake a general claim on the company’s assets on failure of payment.

The very base of asset financing is providing money or giving a loan based on pre-requisites. The said pre-requisites include acquiring the balance sheet of a company that will comprise of: 

• The short term investments
• The inventory and accounts receivable

The company in need of the funds (the borrower) needs to provide security interest in the assets, named as the collateral, as well as a stock research report.

The collateral can be described as a property or an asset that can be procured by the financing company upon failing to pay the loan incurred from them. 

It’s a way to acquire a quick loan by offering insurance in the form of an asset or a property.

The company that requires the funds for a working capital or a short term cash loan pledges its accounts receivable. But presently pledging the reserved or inventory assets has become the more popular alternative.

Asset financing was previously a last resort taken by companies, but it has gained popularity over the years.

Asset lending:

Asset lending is an alternative that companies resort to when the normal methods of acquiring funds are deemed not feasible. Asset based lending ensures the seizing of the assets pledged on failure of procuring the payment within the decided period duration. The company places all its assets as collateral, which face definite seizure on failure of payment.

The difference between assets based lending and financing:

Asset based financing by asset reconstruction companies has a slight difference from the collateralized loans that are provided via asset based lending.

The other assets that may not have been used directly in acquiring the loan do not stand the chance of seizure on failing to pay the borrowed money. Those assets that were not a part of the loan qualification process do not serve as collateral. Asset financing is an alternative taken up by companies against currently owned assets.

JM financial caters to both asset financing and lending with an efficacious management skills that will ensure a hassle free loan procurement process.