Asset-Based Loan

Last Updated: Jun 6, 2019

Created By :

Last Edited By :

Created On :

An asset-based loan is a credit facility that is supported and governed by an underlying pool of assets, otherwise known as a borrowing base. The value of the underlying pool of assets, for example accounts receivable and inventory held by the borrower, determine the size of the loan that a borrower can request at any given time. Asset-based loans can be structured as revolving loans or term loans, and are generally supported directly by a lender's perfected lien on explicit assets. For example, a lender may file a legal claim on a particular piece of equipment that is owned by a potential borrower, and provide a loan to that borrower in an amount directly correlated with the value of that asset, such as lending 60% against a $500,000 piece of machinery, which would be $300,000. In the event the borrower defaults on the $300,000 loan, the lender may choose to take possession of and liquidate the piece of machinery that supported the loan, and use the proceeds of that sale to make the borrower's obligation "whole" once more.