Current vs Fixed Assets: What Lenders Look for in Business Loans

Business assets are important in managing and upgrading your business’s financial health. These assets are divided into two types, current and fixed assets. These two assets are important when applying for a loan. In this blog, let us learn about these asset types, their benefits and how they impact your Business Loan. Let’s get started!

What is a Current Asset?

A current asset is a short-term asset that can be quickly converted into cash within a year. It is crucial for meeting day-to-day expenses and obligations. Current assets include cash and cash equivalents, accounts receivable, inventory, prepaid expenses and marketable securities.

For lenders, current assets indicate liquidity and show how well your business can manage short-term liabilities, especially while applying for a Business Loan.

What is Fixed Asset?

Fixed assets, also known as long-term assets, are used for long-term business operations and cannot be sold in a short period. It includes buildings, land, machinery, vehicles and office equipment. These assets hold value over time and can be used as collateral when availing of a secured loan.

Fixed Vs Current Asset

While both asset types are important, they serve different purposes:

Advantages of a Current Asset

Here are some advantages of having current assets:

1. Quick Liquidity: The liquidity shows that the business can cover operating costs and short-term debts.
2. Efficiency in Operation: This highlights how well your company manages the cash flow.
3. Risk Reduction: It indicates a lower risk in loan repayment due to easy cash conversion.
4. Creditworthiness: Helps the lender to evaluate short-term repayment potential.

Advantages of a Fixed Asset

Now let’s take a look at the advantages of a fixed asset:

1. Collateral for Loans: The fixed assets can help you secure large loan terms.
2. Business Stability: This showcases the long-term commitment and operational base of your business.
3. Investment Potential: It reflects the growth of your business and capital expenditure.
4. Depreciation Benefit: Useful in tax planning and increasing net profits.

How Current and Fixed Assets Impact a Business Loan

The lender reviews both types of assets to get a full picture of your business’s financial health. Here is how they can impact the loan process:

• Short-term Business Loan can focus more on current assets, as lenders want assurance of quick repayment ability.
• Long-term Business Loan often prioritises fixed assets, which can be used as security in case of default.
• Creating a balance ratio of current to fixed assets can enhance trust and improve the loan eligibility.

3 Tips to Manage Assets for Better Loan Approval

Let’s take a look at the tips to manage assets for better loan approval:

1. Maintain Clean Records: Keep the documentation of your asset updated and accurate.
2. Increase Inventory Turnover: Enhance the liquidity by managing stock efficiently.
3. Use Fixed Assets Wisely: Leverage your machinery or property as collateral.

Steps to Apply for a Business Loan

Different lenders have different Business Loan application processes. But if you are looking for a lender with instant application and quick disbursal, Poonawalla Fincorp could be the right choice. Here are the steps you must follow:

Step 1: Click on “Apply Now”

Tap on the ‘Apply Now’ button to initiate your application.

Step 2: Enter Your Details

Enter your DOB, PAN card number, monthly income, and residential details.

Step 3: Upload Your Documents

Upload the necessary or required documents for quicker approval.

Once your verification is successful, the loan amount will be disbursed into your bank account instantly.

To Conclude

Understanding the difference between current and fixed assets is essential for business owners looking to secure a loan. Current assets highlight a company’s liquidity and its ability to handle daily financial obligations, while fixed assets indicate long-term stability and growth potential. Lenders consider both when evaluating creditworthiness, repayment capacity, and available collateral.

A strong mix of these assets can strengthen your loan application. By keeping records up to date, managing inventory efficiently, and using fixed assets wisely, businesses can improve their loan eligibility and financial standing. However, it is also essential that you select a trusted lender for your loan journey. This is where a Business Loan from Poonawalla Fincorp can be your financial partner, letting you enable your dreams and taking your business to new heights.

Frequently Asked Questions

1. How do current assets affect short-term loan approval?

Current assets like cash, inventory, and receivables indicate that the business can manage daily expenses and repay short-term loans promptly, which boosts lender confidence

2. How can I improve asset management before applying for a loan?

Keep asset records updated, increase inventory turnover to enhance liquidity, and strategically utilise fixed assets as collateral when seeking funding.

3. What’s the ideal CIBIL score required for a Business Loan?

A CIBIL score of 750 or above is ideal for getting a Business Loan.