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Asset based financing is a funding option that enables businesses to access either a loan or a revolving line of credit that is secured by assets (i.e. collateral), such as inventory, equipment, receivables and so on.

Asset Based Financing Advantages
There are several advantages of asset based financing that make it an intelligent funding solution for many businesses. These include:- Since funding is based on assets vs. profile (i.e. history of profitability, credit scores, etc.), it is much faster and easier to obtain than a conventional bank loan.
- The total cost of borrowing is typically lower than other types of funding options, such as factoring.
- Additional inventory that is acquired or generated during the life of the loan can be added to the borrowing base, which in turn can increase the loan (or line of credit if applicable).
Asset Based Financing Limitations
As with all business funding products, there are some limitations to asset based financing that are important to keep in mind as well. All of these pertain to loans where receivables are used as collateral (instead of equipment, inventory, real estate, etc.):- Lenders may periodically want to verify a sample of invoices.
- Lenders may want to scrutinize larger transactions to ensure that a borrower’s customer has the capacity to pay in full and on time.
- Payment is often handled through a “lock box” arrangement, in which the borrower’s customers remit payments to a designated bank account. Lenders then credit the received funds against the loan balance.