When cash flow is tight, many businesses struggle to get approved for traditional bank loans. That’s where asset-based loans come in. Instead of relying solely on credit scores or profits, lenders use your business assets as collateral to secure financing.
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What is an Asset-Based Loan?
An asset-based loan (ABL) is a line of credit or term loan secured by your company’s assets — such as accounts receivable, inventory, equipment, or even real estate. The more valuable your assets, the larger the credit line you can qualify for.
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How It Works
1. Valuation – The lender reviews your assets to determine their value.
2. Advance Rate – You receive a percentage of that value as a loan or credit line (often 70–85% for receivables).
3. Ongoing Monitoring – The lender may require regular reports to ensure the collateral stays strong.
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Common Assets Used as Collateral
• Accounts Receivable – Unpaid invoices from creditworthy customers.
• Inventory – Finished goods or raw materials.
• Equipment – Machinery, vehicles, or tools used in your business.
• Real Estate – Commercial property owned by the business.
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Benefits of Asset-Based Loans
• Easier Approval – Strong assets can offset weaker credit history.
• Flexible Funding – Lines of credit grow with your business.
• Quick Access – Faster approval than many traditional loans.
• Retain Ownership – Unlike selling equity, you keep full control.
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Who Uses Asset-Based Loans?
ABL financing is popular with:
• Manufacturers and wholesalers with valuable inventory.
• Service companies with large receivables.
• Seasonal businesses needing extra cash during busy periods.
• Growing companies investing in expansion.
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Potential Drawbacks
• Collateral Risk – If you default, the lender can seize your assets.
• Monitoring Requirements – Lenders may audit collateral regularly.
• Higher Costs – Interest rates and fees can be higher than bank loans.
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When It Makes Sense
An asset-based loan works well if you have valuable assets but need fast cash for growth, payroll, or paying suppliers. It’s also a strong option when your credit score or financial history limits access to traditional loans.
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Bottom Line
Asset-based loans can turn your receivables, inventory, or equipment into working capital — giving you the resources you need to grow, even when bank loans aren’t an option.
Asset-Based Loans: Turning Business Assets into Working Capital
