What is meant by asset-based lending?

What is meant by asset-based lending?

Asset-based lending is a loan or line of credit issued to a business that is secured by some form of collateral. The various types of collateral used in asset-based lending includes but are not limited to inventory, equipment, accounts receivable and other balance-sheet assets.

What are the types of asset-based loan?

Typically, the different types of asset-based loans include accounts receivable financing, inventory financing, equipment financing, or real estate financing Asset-based lending in this more specific sense is possible only in certain countries whose legal systems allow borrowers to pledge such assets to lenders as …

How do asset-based loans work?

Asset-based lending is the business of loaning money in an agreement that is secured by collateral. An asset-based loan or line of credit may be secured by inventory, accounts receivable, equipment, or other property owned by the borrower. The asset-based lending industry serves business, not consumers.

What is meant by asset based?

Key Takeaways An asset base is the underlying value of assets that constitute the basis for the valuation of a firm, loan, or derivative security. For a firm, the asset base is its book value. For a loan, it is the collateral backing the loan. For a derivative, it is the underlying asset.

What are the benefits of asset-based lending?

Asset-based lending offers the following advantages to the borrower: Asset-based loans are easier and quicker to obtain than unsecured loans and lines of credit; Such loans generally include fewer covenants; and. Asset-based loans generally come with a lower interest rate compared to other funding options.

Is a bank loan an asset?

However, for a bank, a deposit is a liability on its balance sheet whereas loans are assets because the bank pays depositors interest, but earns interest income from loans.

What is asset based income?

Understanding Earning Assets Earning assets include stocks, bonds, income from rental property, certificates of deposit (CDs) and other interest or dividend earning accounts or instruments. They can provide a steady income, which makes particularly useful for long-term goals such as retirement planning.

What is asset based costing?

The asset-based approach focuses on the valuation of the firms assets or, in some instances, the cost of replacing those assets. This approach puts emphasis on the total assets and liabilities of the firm. It therefor reflects a whole-firm valuation, rather than simply an equity valuation.

Which of the following is example of asset-based lending?

Asset-based lending refers to a loan that is secured by an asset. Examples of assets that can be used to secure a loan include accounts receivable, inventory, marketable securities, and property, plant, and equipment (PP&E).

What is the difference between a cash flow loan and an asset-based loan?

Key Takeaways. Both cash flow-based and asset-based loans are usually secured. Cash flow-based loans consider a company’s cash flows in the underwriting of the loan terms while asset-based loans consider balance sheet assets.