Asset Based Lending is currently a major source of funding for many companies
Asset Based Lines of Credit are main attractions in today's competitive business world with fast and steady funding provisions. Since they supply a continuous flow of cash by means of revolving lines of credit, they provide financial support and stability to the day-to-day operations of their commercial borrowers. Each borrowing company's credit line is determined by the combined worth of its assets. These assets may include accounts receivable and inventory, business equipment, manufacturing machinery, certain contracts with recurring revenue, or personal assets of business owners.
What Type of Collateral is Most Often Required for Asset-Based Lending?
Acceptable collateral for most asset-based loans (ABLs) includes accounts receivable, inventory, business equipment, and factory machinery. Appropriate inventory may be both finished goods and marketable raw products. In some instances, certain personal assets of business owners may be requested by lenders as collateral.
- Accounts receivable. – This is the most popular type of collateral among asset-based lenders, due partly to the liquidity aspect of these accounts. Also, this form of collateral has a pre-set value.
- Inventory takes second place to accounts receivable on the list of collateral most favored by asset-based lenders. This is mainly because inventory lacks the stabilized value and liquidity of accounts receivable. It is necessary for inventory to be sold in exchange for cash to establish value. In addition, inventory aspects like LIFO and FIFO make value assessments difficult. Learn more about Inventory Financing
- Although they are often acceptable collateral for asset-based lending approval, manufacturing machinery and business equipment are usually more helpful for obtaining a term loan. Their worth as collateral is longer lasting and equal to the duration of their useful operation. Currently, trademarks and customer lists also can be used as collateral for some ABLs.
Since both accounts receivable and inventory are renewed throughout the year at periodic intervals, they are in the favored classification of eligible collateral.