In what situation might a lender favor asset-based lending?

A lender might favor asset-based lending when the borrower has a volatile income because this type of lending allows the lender to focus on the value of the borrower's assets rather than relying primarily on their income or creditworthiness. In situations where a borrower's income fluctuates due to seasonal work, freelance arrangements, or other variable factors, lenders may feel less certain about the borrower's ability to repay based solely on income. By using asset-based lending, lenders can assess the collateral provided by the borrower, such as real estate, equipment, or other tangible assets, which can secure the loan and reduce the lender's risk. This approach can be particularly beneficial when traditional income verification methods may not paint a reliable picture of the borrower’s financial stability.

In contrast, the other scenarios generally indicate a more stable financial outlook, which typically aligns more with traditional lending practices that focus more heavily on credit scores, consistent profits, and stable employment histories as indicators of a borrower’s ability to repay a loan.