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Asset-Based Lending

Asset-based lending (ABL) is a type of financing where a loan is secured by collateral, typically the borrower’s assets such as inventory, accounts receivable, machinery, or real estate. This form of lending is often used by businesses that need working capital but may not have the creditworthiness to secure unsecured loans. The amount that can be borrowed is usually a percentage of the value of the secured assets.

Example

A manufacturing company might use its inventory and accounts receivable as collateral to obtain an asset-based loan for purchasing raw materials.

Key points

• A type of loan secured by the borrower’s assets, such as inventory or receivables.

• Often used by businesses needing working capital with insufficient credit history for unsecured loans.

• Provides access to capital while allowing lenders to secure the loan with tangible assets.

Quick Answers to Curious Questions

Asset-based lending is a type of financing where the loan is secured by the borrower’s assets, such as inventory, receivables, or real estate.

Companies use asset-based lending to access working capital, especially when they lack the credit history or financial strength to secure unsecured loans.

Common assets used as collateral include inventory, accounts receivable, machinery, and real estate.