Asset-based lending is a type of lending controlled by an asset. That means that if a loan is not repaid within the deadline set, the asset is taken from the user. For example, a mortgage is considered an asset-based loan. However in a broader spectrum, the phrase is used to illustrate the idea of lending to businesses and other large corporations with the use of assets not normally made in other loans. Typically, Asset-based lending loans are related to all store wide inventory, accounts received, and common equipment used. This lending is usually used more in certain countries that use legal systems allowing users that borrow items to take after such assets to lenders with the addition for to loans (after the creation of certain security measures).
Asset-based lending is typically done when normal methods of fundraising is not possible. An example is the capital markets offering certain bonds to potential investors and certain secured or unsecured banks. This may result from the company exhausting all capital and raising options too fast. Or the company needs a quicker way to gain financing for a project (common uses include inventory purchases, and various mergers). Asset-based loans are usually accompanied with lower interest rates, due to the fact that during a default, the lender has the option to liquidate all assets.
Several financial services companies are now use staffing factoring during the development of structured and leveraged financial services. Many well-known worldwide investment banks such as J.P. Morgan, Wells Fargo, Goldman Sachs, or Morgan Stanley offer development or structured services to draw in more corporate clients. Smaller businesses may use this method as well.
A real life example used to illustrate the use of asset-based loans, was at the time the global securitization market dropped to an new low after the collapsing of the fairly recent investment bank, Lehman Brothers Holdings, during the year 2008. All across Europe, more than 710 billion euros of bonds were given out to those effected. They were backed up largely by asset-based loans, such as home and auto loans.
In addition to large enterprises, many ordinary individuals and starting small business owners rely on asset based lending services for gaining finances for a short term project. Service providers like Unbolted, provide quick short term loans against luxury assets. This service plan works for a number of items such as old antique cars, expensive watches, rare wines and other assets. Most lenders will not offer credit checks or pay out before 24 hours.
Asset-based lending, once considered a dead last-resort finance option to many companies, has now grown and seen a lot of success by companies and individuals that have struggled with good credit history, keeping up with track records, or even the patience to wait for larger banks to process traditional capital sources. It is important to keep in mind that there will be a credit limit on Asset-based lending just like any other credit company. It will most likely be based off one’s based credit history.