In recent years, as companies are seeking alternatives to traditional bank financing, asset-based lending has surged in popularity. This is a solution that offers flexible financing to companies with cash flow shortages due to growth. In this blog, we’ll explain the fundamentals of asset-based lending.

What is Asset-Based Lending?

The very first thing we need to do is define asset-based lending. This is a method of financing that allows you to draw on a revolving line of credit with your assets as the collateral. The thing that makes this different from traditional financing is that it’s determined by the strength of your assets, not the strength of the company. It offers many of the same advantages of traditional financing, without all of the requirements.

Most of the time, these are structured like a revolving line of credit, with assets and receivables as the collateral. Sometimes, the transactions may be structured like a traditional term loan.


There are a few advantages related to asset-based lending. They are as follows:

Quickly improves cash flow
Easier to get than other financial products
Cheaper than other solutions
Can be used for corporate turnarounds
Fewer requirements/covenants than other financial products


That being said, there are some disadvantages of asset-based lending as well. They are as follows:

Payments are handled via lockbox
Invoices may be verified periodically
Larger transactions subject to audit by a lender

How are Transactions Structured?

With asset-based lending, transactions are typically structured like a line of credit. The size of your credit line is determined by the borrowing base, which is determined by your assets, which include property, equipment, inventory, accounts receivable, etc.

The lender will put borrowing limits based on the type of asset you use. Typically, accounts receivable has the highest limit at 80 to 85%, while inventory is limited to around 50%.

Once the borrowing base is established, you can submit a financing request. The finance company will process the request and send the funds to your bank account so you can immediately access it. When the assets convert to cash, the transactions will settle.

How are Fees Structured?

There are several ways that fees can be structured in asset-based lending. Most of the time, they employ a two-fee model: discount fee and service fee.

The discount fee is charged once on the gross value of the invoices being financed.
The service fee is a percentage charged against the funds used, calculated daily but charged monthly.

Total fees are calculated by adding the two. It’s important to note that some lenders have different names for these fees, though the transaction is the same. These are not the only two fees that lenders charge. Some of the other fees that may be charged are audit fees, management fees, facility fees, as well as others.


If your business is struggling with finances, asset-based lending might be a way to get the help you need. This type of financing has become popular because it is so much easier to get than traditional loans. If you need help with getting financing for your business, contact BT84 Commercial Capital & Business Solutions today. We will guide you through the process.