Asset-Based Lending

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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".

INVESTOPEDIA EXPLAINS '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.

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