Small Business Term: What Is Asset Based Financing?

by Greg DePersio

0 min read

Asset-based financing is a form of short-term financing in which a business uses an asset as collateral to obtain a cash advance. The types of assets used in asset-based financing includes a business’ receivables, purchase orders, and inventory. Asset-based lenders will advance up to 90% of the value of the asset and are repaid when the business’ customer remits payment.

Asset-based financing is becoming a preferred source of capital for small- to mid-sized businesses for a number of reasons:

  • Qualification does not depend on a business’ credit standing. It relies on the creditworthiness of the business’ customers.
  • Asset-based loans can be approved within days instead of weeks or months typical of traditional bank loans.
  • Asset-based loans do not require business or personal assets for collateral.
  • Companies can keep capital working in the business while using the lender’s money to cover immediate costs.

References & Resources

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