July 25, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Asset-Based Lending vs Cash Flow Lending - Which to Choose

As a business owner, it is crucial to maintain a healthy cash flow to ensure smooth operations. However, there may be times when daily expenses exceed available funds, leading to potential financial difficulties.

When this happens, securing a loan can be a viable option to bridge the gap.

Traditional bank loans may not always be accessible, especially if your credit history is less than perfect.

Cash flow lending can be a helpful solution to address financial constraints.

On the other hand, asset-based lending focuses on leveraging your company's assets to secure a loan.

While this approach can benefit businesses with valuable assets, it may not be suitable if your assets are limited or do not meet the lender's requirements.

Therefore, it is essential to navigate this financial terrain to determine which path is best suited to fuel your business's ambitions.

Keep reading to find out more.

What Is Cash Flow Lending?

Cash flow-based lending evaluates the overall financial well-being of your business and supplies loans based on future cash flows, precisely the business's profits and revenue margins.

The lender assesses your ability to make loan payments by analyzing past cash flows and projecting future ones.

Essentially, as a borrower, you rely on anticipated future revenues to repay the loan.

These loans do not require any assets or collateral as security, making your business creditworthiness a crucial factor in the lending decision.

For instance, if you need to fulfill customer payments, you can use cash flow finance to meet those obligations and repay the loan using the profits generated by the same business at a later date.


What Makes Cash Flow Lending A Good Choice?

Cash flow loans are particularly suitable for companies with high-profit margins or those lacking substantial tangible assets to offer as collateral.

Service companies, marketing firms, and manufacturers of low-cost products often fall into this category.


Cash flow loans often have higher interest rates than other loan options because lenders cannot acquire physical collateral in case of default.

What Is Asset-based Lending?

Asset-based lending focuses primarily on the value of a company's assets listed on its balance sheet, using them as collateral to secure loans.

Common assets that you can use as collateral in such loans include:

  • Real estate
  • Property
  • Machinery and equipment
  • Inventory
  • Accounts receivable

If you don't repay the loan, the lender has the right to take possession of the collateral and sell it to recover the amount owed. This is known as a lien.


While cash flows, particularly those associated with physical assets, are considered in the loan process, they play a secondary role compared to asset value.

The loan-to-value (LTV) ratio is an important consideration in asset-based lending, influenced by a company's credit quality and rating.


Creditworthy companies can usually obtain loans worth 75% to 90% of the total value of their pledged assets. Weaker credit companies may only secure 50% to 75%.

Before approving an asset-based loan, most lenders conduct a comprehensive due diligence process.

For example, this involves examining accounting, tax, and legal matters, analyzing financial statements, and appraising assets.

The underwriting process influences loan approval, interest rates, and the allowable principal offered.

What Makes Asset-based Lending A Good Choice?

These loans are particularly beneficial for companies with a robust balance sheet and a need for financing to fuel their growth.

Asset-based lending especially appeals to businesses that prefer to avoid restricting their borrowing criteria based on future revenues or profits.

It offers flexibility by leveraging existing assets to obtain the necessary funds for expansion and other financial requirements.

Asset-based lending suits companies with substantial balance sheets and lower EBITDA (earnings before interest, taxes, depreciation, and amortization) margins.

Furthermore, it benefits businesses that require capital to operate and grow, especially in industries with limited cash flow potential. 


Moreover, each type of loan employs different metrics to assess the qualification.

🧾Cash flow-based loans emphasize EBITDA (earnings before interest, taxes, depreciation, and amortization), which filters out accounting impacts on income and focuses more on available net cash.

🧾On the other hand, asset-based loans are less concerned with income. Instead, they prioritize monitoring liquidity and solvency, with fewer operational requirements imposed by lending institutions.


Asset-Based Lending Vs Cash Flow Lending – Pros and Cons

When it comes to financing options for your business, it's essential to weigh the pros and cons of different lending approaches.

Asset-Based Lending Pros

Easier access to financing: It can be a viable option for businesses with valuable assets but limited cash flow or credit history.

Potentially lower interest rates: Since assets secure the loan, lenders may offer more favorable interest rates than unsecured loans.

Flexibility: Asset-based lending offers more flexibility regarding loan amounts, repayment terms, and usage of funds.

Asset-Based Lending Cons

Asset valuation and monitoring: The lender will assess the value and condition of your assets, which can involve additional time, documentation, and fees.

Risk of asset seizure: If you default on the loan, the lender has the right to seize and liquidate the collateral to recover their funds.

Cash Flow Lending Pros

Less emphasis on collateral: Cash flow lending can benefit businesses lacking valuable assets but with a strong cash flow history or projected future earnings.

Lower risk to assets: Since the loan is based on cash flow, your assets may not be directly at stake in the event of default.

Cash Flow Lending Cons

Higher interest rates: Cash flow lending may carry higher interest rates due to the perceived higher risk for lenders, especially if the business has weak cash flow history or uncertain projections.

Stricter eligibility criteria: Lenders may scrutinize your financial statements, credit history, and business operations more thoroughly to assess the viability of your cash flow.

Distinguishing Asset-Based Vs Cash Flow Loans – Key Differences

Asset-based and cash-flow lending have advantages and drawbacks, and choosing between them depends on your needs.

Let's explore the differences and determine which loan type best suits you.

1. Collateral

Cash flow loans do not involve collateral and rely solely on the company's ability to generate future income.

The borrower's credit rating plays a significant role in determining eligibility for these loans.

In contrast, asset-based loans consider the company's existing assets that can be collateralized.

Suppose you fail to fulfill your payment obligations. In that case, the lender can use the collateral assets in the future to recover their losses.

2. Suitability

Asset-based loans may not be suitable for every business, just as cash-flow loans may not be the best fit for others.

The company's credit rating is crucial in determining the loan amount or whether the company can secure the loan in the first place.

That’s why cash flow loans are ideal for companies with solid credit and verifiable cash flow.

On the other hand, asset-based loans are more suitable for borrowers with limited cash flow or a lower credit rating.

The value of the assets must be significant enough for the bank or lender to take a risk on the loan.

3. Criteria

Since the objectives of asset-based vs cash-flow loans differ significantly, the criteria used to grant loans also vary.

EBITDA is a standard criterion for cash flow-based loans, often calculated alongside a credit multiplier.

This approach helps account for potential risks arising from economic downturns or industry-specific challenges.

Cash flow loans are typically easier to obtain as they do not require collateral, which makes them particularly favorable for small and medium-sized businesses.

Conversely, asset-based lending considers factors like the value of assets, liquidity, and solvency.

While cash flow-based loans are easier to acquire without collateral, asset-based loans require collateral based on tangible assets.

📌 Ultimately, assessing your company's financial situation, credit rating, and future cash flow projections will help determine the best loan type for your needs.



To sum it up, choose asset-based lending if you have valuable assets but limited cash flow.

Or, opt for cash flow lending if you have a robust cash flow but limited valuable assets.

However, it's essential to assess your situation, consider the associated costs, risks, and requirements, and consult with financial professionals or lenders to make the best decision for your business.

What Can Myos Offer You?

If you are an ecommerce seller and need quick and easy funding with minimal paperwork, Myos has a solution.

With €10.000-2.500.000 of additional capital, you can cover various expenses as you wish, such as:

  • Purchasing more inventory to meet customer demands and market conditions
  • Cover shipping and transportation costs and maintain smooth operation
  • Invest in marketing to boost your sales and reach a broader customer base
  • Launch new products and expand your product line
  • Renovate or expand your warehouse or storage facilities

Who do we finance?

To be eligible to get purchase or stock financing, you need to meet the following requirements:

  • Your company has a registered office in Germany, Austria, Cyprus, or the United Kingdom (UK) and is not a shell or shelf company.
  • Your company has been in business for at least 6 months.
  • Your products have been sold in ecommerce for at least 50 days (e.g., on Amazon, eBay, online shop, etc.).

How does it work?

At Myos, we serve as your growth partner, providing solutions that empower sellers to achieve their business objectives.

With us, you can confidently order more goods, launch new products, and invest in marketing strategies to boost your sales and profits.

The best part?

You can accomplish this without personal risk or guarantees because we accept your products as collateral.

Our repayment system is designed to be flexible, allowing you to manage your finances comfortably at any time within 24 months. The sooner you repay, the lower the cost.


If you no longer require the funds after just one week, you have the freedom to pay it back, concluding the project with no additional costs.

How do we determine financing terms?

We utilize artificial intelligence to analyze your product data, considering factors such as price history, competition, and visibility.

Our AI determines the appropriate financing volume and interest rate based on this evaluation.

It's important to note that the financing volume is not dependent on the purchase price and can vary, either lower or higher.

With our comprehensive evaluation process and flexible repayment options, we aim to provide you with a seamless financing experience tailored to your specific needs.


Sign up today and unlock your business's potential for growth and success.


Are Interest Rates Different for Asset-based Lending and Cash Flow Lending?

Interest rates can vary based on the specific circumstances. Still, cash flow lending may generally have higher interest rates due to the perceived higher risk associated with unsecured loans. Asset-based lending may offer more favorable rates since the collateral mitigates the risk for the lender.

How Do Asset-based Lending and Cash Flow Lending Differ?

The key difference lies in what is the primary determinant for granting loans. Asset-based lending relies on the value of tangible assets. In contrast, cash flow lending focuses on projected or historical cash flows.

Which Businesses Are Better Suited for Asset-based Lending?

Asset-based lending is well-suited for businesses with substantial tangible assets, such as manufacturing, distribution, or construction.

When is Cash Flow Lending More Appropriate?

Cash flow lending is a good choice for businesses with strong cash flow and future revenue potential that lack significant tangible assets to offer as collateral. Service-based industries or technology companies often find cash flow lending more suitable.

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