One of the most prominent concepts in the world of financing is that of asset-based lending. Asset-based loans are very similar to regular loans, but they are based around a singular asset. There are a variety of asset-based loans available today, but they can be sorted into two main types. Here are the two types of asset-based loans.

Asset-Based Line of Credit

Similar to a regular line of credit, an asset-based line of credit is simply a line of credit that is secured against a high-value asset. The benefit of this type of line of credit is that it will have much lower interest rates than a traditional line of credit because it is lower-risk for the lender. Because they have your asset held as collateral, they have little cause for concern, and therefore can offer lower interest rates. Collateral for this type of asset-based lending can be a number of things, depending on the stipulations of the lender. Some lenders prefer only to take fixed value assets as collateral; such as machinery or equipment. They do this so they can avoid any problems arising from sudden changes in the value of the asset. Other lenders may allow more variable-valued assets; such as inventory and accounts receivable financing. These lenders are more concerned with the liquidity of the asset, and will typically prefer a more solid asset than a more liquid asset.

Asset-Based Term Loan

An asset-based term loan behaves very similarly to a standard term loan, with the main difference being the asset being held as collateral by the lender. It differs from an asset-based term loan because it is structured like a typical loan, where a lender will lend a specific amount of money in full, and it will be paid back over a predetermined amount of time, the term. Like with an asset-based line of credit, lenders typically prefer an asset with a fixed value to be held as collateral. Using a fixed value asset will be safer for your business as well as for the lender, and because of this, you will be offered a far lower interest rate.

These are the two main types of asset-based lending. There are many things to consider when applying for financing solutions, but if you have access to a fixed, high-value asset you should keep in mind asset-based loans. It is one more resource you are able to take advantage of.