What Is Asset-Based Lending?

Asset-based lending is the business of loaning money in an agreement that is secured by collateral. Such a loan may be secured by inventory, accounts receivable, equipment, or other property owned by the borrower.

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The asset-based lending industry serves business, not consumers. It is also known as asset-based financing.

 

Asset-Based Lending Uses

Asset-based loans are typically used to fund a business’s short term cash flow shortfall, working capital requirements, accounts receivable, bridging finance, purchase orders, inventory, debt consolidation and/or business expansion.

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How Asset-Based Lending Works

Asset-Based lending in its simplest form is the process whereby a borrower will offer as collateral in the form of assets to a lender, in order to secure a loan. Upon receipt of the application, the lender will before my due diligence on both the borrower and the assets on offer. Should the assets be acceptable to the lender, the lender will then extend a loan (equal in value to the Borrowing Base) to the borrower.

 

At this stage, the borrower then decides whether the loan value and associated terms and conditions are acceptable to it. The borrower traditionally will sign the offer acceptance notice and return it to the lender. The lender then proceeds with the drafting of the documentation and upon conclusion of the loan agreement settles the loan by paying the loan value to the borrower by means of electronic transfer.

 

Who Uses Asset Based Loans?

Asset-based loans (ABL) are used by companies that need working capital to operate or grow. Often, companies that request an ABL have cash flow problems. However, many of these cash flow problems stem from rapid growth. The asset-based lending facility helps companies manage the rapid growth issues and positions the company for growth.

 

Who Qualifies For Asset Based Lending?

Generally, asset-based financing is offered to companies that are stable and have assets (or have access to) that can be financed or easily sold. The company’s assets must not be pledged as collateral to another lender. If they are pledged to another lender, the other lender must agree to subordinate its position. Also, the company must not have any serious accounting, legal, or tax issues which could encumber the assets.

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Our loans have a minimum of $10,000  to $150,000 in utilisation requirements, repayable over a  12 month period or less. In some instances, where the collateral pledged is particularly good, transactions greater than $150,000 will entertained.