Corporate Writing Sample: How Does Asset-Based Lending Work?

Subject: Asset-Based Loans
Keywords: asset-based, asset-backed, loan, loans, lending

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There are several kinds of lending methods by which a company or a person can raise funds. One of the most common types is asset-based lending.

In the simplest terms, asset-based lending involves putting up a company’s assets as collateral for a loan.

There are different kinds of assets that can be used to secure your loan. Real estate properties, patents, accounts receivable, equipment, and inventory are just some of the commonly-accepted forms of collateral. Technically, any company or individual can avail themselves of asset-based lending. As long as your asset qualifies in the lending company’s requirements, you can apply for an asset-based loan.

The amount you can borrow depends on the appraised value of your assets. Unlike other forms of lending, asset-based lending offers competitive interest rates. In fact, many large companies favor asset-based lending when funding expansions, acquisitions, and inventory or equipment purchases.

Asset-backed loans can often be obtained quickly, providing a much-needed influx of cash to meet the particular demands of business operations. Where other loan types might require a lengthy application process and multiple boundaries on loan amounts and uses, asset-based lending can be relatively simple and straightforward. With a good valuation on top-notch assets, your loan can be ready and available very quickly.

Often borrowers who are unable to qualify for other types of lending can succeed with asset-based lending. Below are some examples of typical candidates for this type of loan:

  1. A borrower with a poor credit record.
  2. A borrower with no viable source of income who is not expecting to have one in the next few months.
  3. A borrower who relies solely on the loan to support financial demands.
  4. A borrower with a minimal or no down payment on a large one-time purchase.

Most companies that favor asset-backed lending find it even more profitable than the usual high-interest, non-secured debts. Large companies frequently follow this route in raising funds for their capital. Any company — including those with poor financial status but a viable asset – can apply for this type of loan.

Asset-based lending can be more flexible, innovative, and reliable than many other loan types, serving the purpose of both the lender and the borrower.