Asset-Based Lending Explained » Investment Instruments

Instrument Type

Secured Debt

Dilution

None

Typical Stage

Post-Revenue through Mature

What It Is

Asset-based lending advances capital secured against identifiable assets — accounts receivable, inventory, equipment, or property. The amount available is calculated as a percentage of the appraised value of that collateral rather than from projected cash flow.

Because the lender's recovery rests on the assets themselves, underwriting focuses on collateral quality and liquidity rather than on the borrower's growth story.

How It's Typically Used

Used to fund working capital where cash is trapped in receivables or stock, to finance equipment purchases, and to provide liquidity for businesses that cannot access unsecured lending. The borrowing base is recalculated regularly as collateral levels change.

Key Terms

Borrowing base — eligible collateral multiplied by the advance rate
Advance rate — the percentage of asset value lent against
Eligibility criteria — which receivables or stock qualify
Field examinations and appraisals
Lockbox arrangements — customer payments routed to the lender

Founder Perspective

Non-dilutive and available to businesses that cannot raise equity on acceptable terms. It unlocks cash already earned but not yet collected. The administrative burden is significant — regular reporting, audits, and sometimes lender control over collections.

Investor Perspective

Security over specific, valuable assets makes this among the lower-risk lending forms, with recovery grounded in collateral rather than enterprise value. The work sits in monitoring: collateral values move, receivables age, and inventory can become obsolete quickly.

Risks & Trade-offs

A falling borrowing base reduces availability exactly when cash is tightest
Reporting and audit obligations are heavy
Liens over core assets restrict other financing
Concentrated or slow-paying customers reduce eligible collateral

Questions To Ask Before Signing

What advance rates apply to each asset class?
Which receivables or inventory are excluded from the borrowing base?
How often is the borrowing base recalculated?
What reporting and audit obligations apply?
What happens to availability if a major customer slows payment?

Structuring a raise?

Global Capital Network connects founders and investors across every instrument on this list.

Explore Opportunities All Instruments

Asset-Based Lending