Gone are the days when the only way most people could invest their money was to open a savings account, or buy shares. These days, there are many more options. One of which is asset-based investments.
In the past, only the very rich or large organisations could get involved in this market. You had to invest tens or hundreds of thousands. That is starting to change. Today, you can potentially get started with as little as £1,000.
If you have never considered this type of investment it is worth finding out more about and considering. Below, we share with you the basics. Armed with this information, you will be able to determine whether it is worth your while investigating further.
What is asset-based investing?
Basically, the money you invest is used to provide loans for asset owners. There are finance firms out there who find people, with assets, who need to borrow money and lend them yours.
The loans made are secured against physical assets that the borrower owns. Usually, the asset comes in the form of land, commercial property or residential homes However, some finance firms accept plant and equipment as assets. This type of financier lends to all kinds of businesses.
Who will be borrowing the money you invest?
Many different kinds of enterprises need to borrow money. This is especially the case for property developers. They have land and property, but, often, they struggle with cash flow. For many, the only way to get the funds needed to develop the land and property they own, and turn a profit, is to borrow.
Before you hand over your money you need to fully understand what type of firms it will be lent to. Knowing this will help you to assess the risk.
Asset based investment questions
Investments that produce income are generally considered earning assets and may be held by a business, institution, or individual. The investment holder earns income based on the earnings of their assets, in the form of regular payments, annual payments, or lump sum payments in the event of asset sell-off.
Investments of any form are generally considered to be an asset. If a particular asset such as marketable security, stock inventory, or investments in bonds produce income, it is in effect an earning asset. Investment assets may decrease in value over time.
Your income is considered an asset, along with your investments, your home or other real estate, vehicles, or generally anything of value under your possession. Your liabilities, on the other hand, would be comprised of what you owe on your assets, including loans, mortgages, or student loan debt.
Asset-based lending is not the same as factoring
Many people make the mistake of believing that asset-based lending is simply a scaled up version of factoring. This is understandable because both types of loans are secured against something the company owns. However, they are different, significantly so.
Asset-based lending is an interesting investment opportunity. But, of course, there is no guarantee that you will make money and your capital is at risk.
So, the nature of the risk involved is also different. If you have been involved in factoring and have been happy with the results, you need to understand what these differences are before switching to an asset-based lending investment vehicle.
Ask about the asset checking procedure
If you are interested in getting involved in this form of investment be sure to only work with a finance firm that has a robust asset and credit checking procedures in place. When your money is lent to a firm or corporation you want to be sure they actually own the assets that the loan is secured against.
Asset-based lending is an interesting investment opportunity. But, of course, there is no guarantee that you will make money and your capital is at risk. So, be sure to read the risk warnings file before investing. Also, use the Financial Conduct Authority’s website to make sure that the lenders you are considering getting involved with are properly registered and regulated.