What is the main focus of asset-based lending?

Asset-based lending primarily considers the tangible value of the borrower's assets, making it the most significant factor in this financing approach. In this type of lending, loans are secured by collateral, such as inventory, accounts receivable, equipment, or other real property. Lenders focus on the liquidation value of these assets to assess the risk involved in the loan.

This method allows lenders to provide loans based on the actual value of the assets rather than solely relying on the borrower's creditworthiness or income potential. It is particularly beneficial for businesses that may not have strong cash flows but possess valuable physical assets to support their borrowing needs.

The emphasis on tangible assets distinguishes asset-based lending from other forms of lending, which might weigh borrower income or future earnings more heavily in their decision-making process.