Asset-based lending is an increasingly available financing solution for smaller businesses. However, it was once considered a more sophisticated product for larger SMEs and mid-sized corporates. It works similarly to invoice finance, where funding is extended against debts. However, in an asset-based lending arrangement, funding is also extended against a wider pool of assets, including stock, property, plant, machinery, and sometimes intangibles such as intellectual property or forward income streams.
The advantage of asset-based lending is that it allows businesses to unlock the value of a broader range of assets and maximize the cash available to support plans. The financing provider will often conduct a thorough assessment of the business’s assets and provide funding based on the value of those assets.
Asset-based lending can also be helpful in mergers and acquisitions, management buyouts, and turnarounds. For example, if a company is looking to acquire another company, it may be able to use its existing assets as collateral for the financing needed to complete the acquisition.
Asset-based lending can provide a valuable source of financing for businesses that may not have the credit rating or track record to qualify for traditional bank loans. By leveraging their assets, businesses can access the funding they need to grow and expand their operations.