BlogFinance
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4
min read
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Written by: 
Nikolaus Hilgenfeldt
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Category:
Finance

What is Asset-Based Financing and How Does it Work?

The US e-commerce market is heating up, with an expected CAGR of 11.2% until 2024. So as more online sellers join the market and aim to secure funding to scale their operations, one of the more popular alternative financing methods has become asset-based lending.

So what is asset-based financing, who is it for, and how does it work? Continue reading through this guide as we cover everything you need to know about asset-based financing. 

If you have never heard of what the different types of loans e-commerce sellers can get, we recommend you start with our guide here.

What is Asset-Based Financing?

To begin, asset-based financing is a lending option where financiers provide funds against the value of an asset. In the case of e-commerce, this usually means seller’s inventory or stock.

This financing method has largely grown in recent years, as it’s a quick and easy way for e-commerce stores to access cash and increase working capital without the strict demands and qualifications of more traditional options.

Given that asset-based loans are a secured form of debt, this is a relatively cheap form of financing compared to other routes, which frees up capital for businesses to pursue other growth opportunities in the meantime. 

Who is Asset-Based Financing For?

As we discuss it here, asset-based lending is for e-commerce stores who can leverage their inventory orders to secure financing from lenders.

It’s important to note that each asset-based financing provider will have its own unique set of requirements for how they qualify borrowers. So, whether an e-commerce store will qualify for this type of financing and how much funding they will receive depends on a variety of factors set by the financiers themselves. 

How Does Asset-Based Financing Work?

Let’s briefly discuss how asset-based financing works.

1. First, an e-commerce store will submit an application with an asset-based lender. Using their proprietary review processes, these lenders will review applicants based on a number of factors. Such factors may or may not include length of sales history, the types of products they sell, revenue projections, and more.

2. Upon approval, the lender will typically accept new orders or existing inventory as collateral for the funds, then they will pay out the funds to the merchant.

3. The merchant will begin to sell the first tranche of the inventory. After a successful sale, the merchant will pay back an agreed-upon amount, and an equivalent amount of goods will be released to the seller. In many cases, the repayment terms can be quite flexible. 

4. Step 3 is repeated until the full amount of the loan has been paid back and all goods have been released.

Depending on the lender, this process may differ slightly. However, this gives you a good idea of what to expect when working with an asset-based financier. 

Asset-Based Financing vs Traditional Bank Loans

When a small business needs to secure working capital financing, the first thing to come to mind may be bank loans. While this is one of the traditional methods for business financing, the rigid qualifications that banks place on lenders is one of the biggest ways loans differ from asset-based lending.

Normally, banks will require the business owner to make a personal guarantee when taking out a business loan, which is not the case with asset-based lending. Plus, banks will typically assess the store’s length of business history, individual and business credit, and ask for collateral in order to qualify the business for a loan.

As you can see, there are many reasons why an early-stage e-commerce store would be excluded from traditional lending practices, whereas asset-based lending is much more flexible and open to working with these types of businesses. 

Asset-Based Financing vs Revenue-Based Financing

Another common financing option for e-commerce stores is through a revenue-based model. With this route, e-commerce businesses will secure funding from a lender, and agree to pay back a percentage of their revenues to the provider each month until the loan is fully repaid. 


While this is an alternative form of funding like asset-based financing, there are still a few key ways that they differ. Revenue-based financing will typically not be available for stores just starting out, as they have no sales history for the lenders to base their decision off of. On the contrary, an asset-based lender may be willing to work with certain businesses depending on the value of the goods they plan to sell and the current state of the market.

With this, the amount of revenue-based financing that can be secured will be limited by the past sales history of the business. This is compared to asset-based financing that can take into account the future potential of the business based on the goods they’re selling. 

Typically, you will find that revenue-based funding is more expensive because the loan is unsecured—higher default rates have to be compensated with higher prices. Not sure how your pricing is calculated? See this article to see what models financiers may use. 

Secure Asset-Based Financing with Myos

As you can see, asset-based financing allows e-commerce stores to have their inventory stock work for them and free up working capital to propel their business forward.

When working with Myos, e-commerce businesses have full freedom to use the secured funds for any reason, and can easily apply in just minutes. Plus, Myos doesn’t require any personal guarantee, and has lean document and business history requirements to help more e-commerce stores secure funding. 

So no matter what your e-commerce store needs cash for, a quick and low-risk way to access funds is through asset-based financing with Myos. See the benefits that asset-based financing with Myos can give you and secure your funding now!

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