What is asset-based lending?

Asset-based lending allows businesses and companies to use assets (like property, inventory, equipment or accounts receivables) as collateral for a loan. If the company defaults on the loan, the lender can claim the asset to try and recoup their costs, so the interest rates can be lower than on unsecured credit lines.

Where have you heard about asset-based lending?

Asset-based lending was once thought of as a last resort, but its popularity is growing. In fact, type asset-based lending into any search engine and you'll end up with pages of ads from the commercial sections of banks and independent finance companies.

What you need to know about asset-based lending.

Asset-based lending is normally used by companies that need cash flow quickly to meet short-term needs. This could be because they need capital to fulfil running costs like making payroll. It could be because they're growing rapidly and need capital for expansion. It could even be to finance an acquisition.

The main risk of asset-based lending is, of course, that the company will lose the asset if they're unable to make repayments. In the worst case, if the asset they have used as collateral is vital for their business operation – like the property where they do business, this may mean they will no longer be able to operate.