Asset Based Lending
Asset-based lending refers to a loan that is secured by an asset. In other words, in asset-based lending, the loan granted by the lender is collateralized with an asset (or assets) of the borrower.
Accounts Receivable
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Inventory & Marketable Securities
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Property, Plant & Equipment (PP&E)
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Lenders commonly use the loan-to-value ratio to determine the amount of money they are willing to lend.
Asset Based Lending
It is less risky compared to other types of lending!
Asset-based lending is considered less risky compared to unsecured lending (a loan that is not backed by an asset or assets) and, therefore, results in a lower interest rate charged. In addition, the more liquid the asset, the less risky the loan is considered and the lower the interest rate demanded.
Asset Based Lending Amount
Asset-based lending commonly references the loan-to-value ratio. For example, a lender may state “the loan-to-value ratio for this asset-based loan is 80% of marketable securities.” It states that the lender would only be willing to provide a loan of up to 80% of the value of the marketable securities.
The loan-to-value ratio depends on the type of asset – lenders are generally willing to offer a higher loan-to-value ratio for more liquid assets. The loan-to-value ratio is calculated as follows:
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Financing & Mortgage Specialist
