Asset-Based Finance

AAA

DEFINITION of 'Asset-Based Finance'

A specialized method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or real estate. This type of funding is great for startup companies, refinancing existing loans, financing growth, mergers and acquisitions, and management buy-outs (MBOs) and buy-ins (MBIs).

INVESTOPEDIA EXPLAINS 'Asset-Based Finance'

An example of asset-based finance would be purchase order financing; this may be attractive to a company that has stretched its credit limits with vendors and has reached its lending capacity at the bank. The inability to finance raw materials to fill all orders would leave a company operating under capacity. The asset-based lender finances the purchase of the raw material, and the purchase orders are then assigned to the lender. After the orders are filled, payment is made to the lender, and the lender then deducts its cost and fees and remits the balance to the company. The disadvantage of this type of financing, however, is the high interest typically charged - which can be as high as prime plus 10%.

RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Management Buyout - MBO

    A transaction where a company’s management team purchases the ...
  3. Asset Base

    The underlying assets giving value to a company, investment or ...
  4. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  5. Corporate Finance

    1) The financial activities related to running a corporation. ...
  6. Asset

    1. A resource with economic value that an individual, corporation ...
RELATED FAQS
  1. How is a tender offer used by an individual, group or company seeking to purchase ...

    A tender offer is made directly to shareholders in a publicly traded company to gain enough shares to force a sale of the ... Read Full Answer >>
  2. How does a company record profits using the equity method?

    A company that invests in another company and has majority control of it would record profits using the equity method. This ... Read Full Answer >>
  3. How does horizontal integration allow companies to share resources?

    In a horizontal integration, a company either acquires another company or merges with that company. This allows the resulting ... Read Full Answer >>
  4. What is the outlook for mergers and acquisitions in the utilities sector?

    Mergers and acquisitions (M&A) in the utilities sector will likely continue at a brisk pace for the foreseeable future, ... Read Full Answer >>
  5. Why should management teams focus more on horizontal integration?

    Management teams should focus more on horizontal integrations because they allow for economies of scale, economies of scope, ... Read Full Answer >>
  6. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    The terms "merger" and "acquisition" are used together because they both describe processes by which two companies become ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  3. Investing

    How To Profit From M&A Announcements

    We look at four strategies that seek to profit from merger and acquisitions announcements.
  4. Stock Analysis

    The CVS Target Deal: A Healthy Union?

    The CVS Health and Target deal should be a win for both. Here's an analysis with a twist.
  5. Investing News

    Most Important Mergers And Acquisitions Of 2015

    Nearly halfway through the year, 2015 is proving to be a big one for mergers and acquisitions.
  6. Fundamental Analysis

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  7. Investing

    Salesforce Buyout

    It’s been over a month now since buyout rumors first began to circulate after sources revealed that Salesforce, the biggest cloud computing software company, was approached by a potential buyer. ...
  8. Entrepreneurship

    How to Exit Your Small Business with Grace

    Here is a guide for how best to leave your baby — your small business.
  9. Investing Basics

    10 Facts You Didn’t Know About Amazon

    Learn some interesting facts about Amazon.com Incorporated, the history behind Amazon's name and the hidden services and technologies that Amazon offers.
  10. Professionals

    The 15 Fastest-Growing RIAs

    Registered investment advisors are consolidating their business and assets. Here are 15 of the fastest-growing RIAs.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!