Asset Financing

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DEFINITION

Using balance sheet assets (such as accounts receivable, short-term investments or inventory) to obtain a loan or borrow money - the borrower provides a security interest in the assets to the lender. This differs from traditional financing methods, such as issuing debt or equity securities, as the company simply pledges some of its assets in exchange for a quick cash loan.

INVESTOPEDIA EXPLAINS

This type of financing is typically used for short-term borrowing or working capital. Companies using asset financing commonly pledge their accounts receivable, but the use of inventory assets is becoming more frequent.


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