Asset-Based Lending


DEFINITION of 'Asset-Based Lending'

A business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory, accounts receivable and/or other balance-sheet assets.

Also known as "commercial finance" or "asset-based financing".

BREAKING DOWN 'Asset-Based Lending'

This type of loan is often used to meet various cash flow needs of companies, for example, meeting payroll or building inventory.

Interest rates on these loans, as you can imagine, are less than interest rates on an unsecured loan or line of credit because if the borrower defaults the lender has the ability to seize assets and attempt to recoup their lending costs.

  1. Asset Base

    The underlying assets giving value to a company, investment or ...
  2. Asset-Based Finance

    A specialized method of providing structured working capital ...
  3. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Creditor

    An entity (person or institution) that extends credit by giving ...
  6. Collateral

    Property or other assets that a borrower offers a lender to secure ...
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  1. What would happen to a company's external fund requirements if it reduces the payout ...

    In short, the stronger the company's internal cash flow, and in turn cash position, the less the need to draw on an external ... Read Full Answer >>
  2. Why do companies issue debt and bonds? Can't they just borrow from the bank?

    Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank ... Read Full Answer >>
  3. What is the difference between investment banks and merchant banks?

    Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different ... Read Full Answer >>
  4. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Full Answer >>

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