At a basic level, asset finance and asset-based lending are terms that essentially refer to the same thing, with a slight difference.
Asset finance refers to the use of a company’s balance sheet assets, including short-term investments, inventory and accounts receivable, in order to borrow money or get a loan. The company borrowing the funds must provide the lender with security interest in the assets. This differs considerably from traditional financing, as the borrowing company must simply offer some of its assets in order to quickly get a cash loan.
Asset finance is most often used when a borrower needs a short-term cash loan or working capital. In most cases, the borrowing company using asset financing pledges its accounts receivable; however, the use of inventory assets in the borrowing process is becoming a more popular and common occurrence.
Asset-based lending is a business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory, accounts receivable and/or other balance-sheet assets. This type of loan is often used to meet various cash flow needs of companies, for example, meeting payroll or building inventory. Interest rates on these loans, as you can imagine, are less than interest rates on an unsecured loan or line of credit because if the borrower defaults the lender has the ability to seize assets and attempt to recoup their lending costs.
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