What are asset-based loans?

Asset-based loans are business loans which use company assets as collateral. Eligible assets can be any business property such as IT equipment, accounts receivables such as outstanding invoices which still need to be honoured by the clients of the business, company equipment, machinery, furniture or real estate property. Assets owned by the business are other accepted types of assets, and in fact, they are often required as lenders will very frequently need a director’s guarantee.

Assed-based loans are secured business loans which carry lower interest rates than unsecured business loans, and allow businesses to borrow much more money, over very long periods of repayment.

In case the assets are accounts receivables, asset-based loans look very similar to factoring arrangements, even more so as the initial funding matches only a fraction of the value of the considered accounts receivables, typically between 75% and 90%.

However, asset-based loans differ from factoring arrangements inasmuch as the latter requires businesses to actually sell the invoices to the financial services provider, which in turns allows this provider to directly claim payments from the business’s clients.

Also, asset-based loans involve a larger borrowing base, worth hundreds of thousands of pounds or millions of pounds, while factoring is much more flexible. These types of loans are therefore cheaper than factoring, as only an APR has to be paid.