What is an asset-based financing?

Asset-based financing, also known as asset-based lending or asset based financing – refers to a form of financing in which a lender (the financier) obtains security by establishing rights over specific assets of the borrower. These can be assets such as debtors, buildings, machinery or inventory. If the loan is not repaid, the financier can seize the collateral.

This form of financing offers flexibility and often frees up maximum liquidity based on a company's current sales figures. This contrasts with traditional forms of credit which are based on historical data, such as turnover, cash flows and balance sheet ratios (for example, leasing and factoring).