Asset-Based Lending for Small Businesses in 2025 | A Complete Guide

Written by: Courtney Muller
  |  2 min read
Learn how asset-based loans work, how they compare to traditional financing, and if they're right for your business. Secure funding with your business assets.

Key Takeaways

  • Asset-based loans are secured by business-owned assets, making them easier to qualify for.

  • Liquid assets like securities offer higher loan-to-value ratios than physical assets.

  • Asset-based lending is faster and more flexible than traditional bank financing.

  • ABL helps small businesses with limited credit access obtain working capital.

When small business owners need funding, they often turn to traditional bank loans. But if your credit score is low or your cash flow is unpredictable, qualifying can be tough. That’s where asset-based lending becomes a powerful alternative.

What Is Asset-Based Lending?

Asset-based lending (ABL) allows businesses to secure financing using valuable assets as collateral. These assets may include:

Eligible Collateral Examples
Inventory Raw materials, finished goods
Accounts Receivable Outstanding invoices
Equipment Machinery, vehicles
Marketable Securities Stocks, bonds
Real Estate Commercial properties

Lenders reduce risk by securing the loan against these assets. If a borrower defaults, the lender may seize and liquidate the collateral to recover the loan balance. 

How Do Asset-Based Loans Work?

Asset-based loans are usually structured as either term loans or revolving lines of credit. The amount you can borrow depends on the loan-to-value (LTV) ratio, which varies by asset type.

Feature Asset-Based Lending Traditional Lending
Collateral Required Often not required
Qualification Based on asset value Based on income & credit
Credit Score More flexible Typically higher requirement
Speed Faster approval May take longer
Financial Covenants Minimal Often strict

Pros and Cons of Asset-Based Loans

Understanding the advantages and drawbacks helps you make an informed decision.

Benefits

  • Easier Approval: Lenders rely on assets, not just credit scores.
  • Lower Interest Rates: Secured loans often come with better terms.
  • Flexible Fund Use: You can use the loan for cash flow, payroll, or inventory.

Drawbacks

  • Collateral Restrictions: Not all assets qualify.
  • Extra Costs: Fees for audits, valuations, and origination may apply.
  • Risk of Loss: Defaulting may result in losing business assets.

Is Asset-Based Lending Right for Your Business?

Asset-based financing suits companies that have valuable assets but face difficulty with credit history or income verification. If your business owns substantial equipment, inventory, or receivables, this type of loan can provide fast, flexible access to working capital.

It’s a strategic solution for businesses dealing with:

  • Seasonal cash flow gaps
  • Expansion efforts
  • High receivable volumes
  • Limited credit access

Before applying, evaluate your collateral’s liquidity and confirm you can meet repayment terms to avoid risking ownership of business assets.

 

 

FAQs: Asset Based Lending

A business uses $120,000 in stocks to secure a loan worth up to $102,000, depending on the lender’s LTV ratio.
You must present eligible collateral and verify its value. While your credit is reviewed, it typically carries less weight than asset valuation.
No. Hard money loans are usually tied to real estate and carry higher interest. Asset-based loans offer broader collateral options and better terms.
Wholesalers, manufacturers, and service businesses with valuable assets and fluctuating revenue often use ABL to stabilize cash flow.
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