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.