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Asset-based lending is a type of financing in which the lender provides credit to the borrower against the borrower’s assets as collateral. Assets can be physical assets such as inventory, equipment, real estate, or financial assets such as accounts receivable and other forms of liabilities.
Asset-based lending is often used by businesses that have many assets but may not have a strong credit history or qualify for a traditional bank loan. It can also be used by businesses that need large amounts of funding quickly and may not have time to go through the lengthy process of applying for a traditional loan.
In asset-based lending, the lender typically conducts a detailed analysis of the borrower’s assets to determine the value of the guarantee and the extendable loan amount. Lenders also assess a borrower’s ability to repay loans based on the cash flow generated by the asset.
Asset-based lending is a short-term form of lending that typically has a loan term of a few months to a few years. They are generally more expensive than traditional bank loans because the lender takes on more risk because they use assets as collateral. However, it could be a convenient option for companies that need quick access to funding and are willing to pay higher interest rates in exchange for the convenience and flexibility of asset-based lending.
