February 15, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

What Is Asset-based Lending - Everything You Need to Know

Did you know that there is a type of lending that allows companies to use their existing assets, like inventory or equipment, as collateral? 

It's called asset-based lending(ABL), and it's becoming an increasingly popular way for businesses to access the capital they need to grow.

For many businesses, securing the necessary financing is the biggest hurdle to growth. 

But, by leveraging your existing assets, you can unlock the capital you need and take your business to the next level.

Still, navigating your way through different options, requirements, and complicated financial terms can be challenging.

But don't get discouraged!

This in-depth guide will cover the fundamentals of asset-based lending along with examples to help you make an informed decision.

So, keep reading to learn more about how ABL can help you maximize your resources!

Let's begin!

What is Asset-Based Lending?

Asset-based lending is a type of financing that uses assets as collateral for a loan. 

It is a fairly new form of business financing that started in the US and is mostly available in the UK and a few other EU countries.

Businesses commonly use it to finance operations, purchase equipment, or expand their business.

What’s more, asset-based lending allows businesses to leverage the value of their assets and use them as security for the loan.

This type of financing can be an excellent way for businesses to access capital quickly and without going through the lengthy process of applying for traditional bank loans.

Asset-based lending is a type of financing in which a company's assets are used as collateral for a loan.

How Does Asset-Based Lending Work?

With asset-based lending, businesses can access funds at competitive interest rates and flexible repayment terms.

This kind of financing works best for businesses with assets like a considerable amount of inventory, equipment, or accounts receivable yet need money to expand or get through a cash flow crisis.

It's crucial to remember that with asset-based financing, you don't have to sell the assets. You are only borrowing against them instead. 

Additionally, because the asset is used as collateral, the lender has the right to seize it if the company defaults on its obligations.

What are the Benefits of Asset-Based Lending?

The borrower benefits from asset-based financing in the following ways:

✔️ Compared to unsecured loans and lines of credit, asset-based loans are simpler and quicker to get.

✔️ These loans often have fewer limitations.

✔️ Interest rates are usually cheaper.

✔️ Businesses of all sizes may apply for these loans.

✔️ You are permitted to both borrow and retain equity.

✔️ You may set specified repayment terms, which makes budgeting more straightforward.

✔️ It allows you to leverage the value of unused assets to increase cash flow, providing growth opportunities.

✔️ Businesses have quick access to liquid capital to pay for immediate business costs.

✔️ You can still combine it with other sources of funding.

✔️ Companies are not required to disclose their plans for asset-based financing formally.


What are the Disadvantages of Asset-Based Lending?

The use of asset-based finance involves risks, too.

They consist of the following:

🚫If you fail to repay your loan, your lender may take the collateral it accepted from you and sell it to cover their losses.

🚫If you don't make your payments on time and your assets are seized, getting financing in the future could be challenging

🚫Each asset-based lender has its own set of loan eligibility requirements. Thus, not all assets are acceptable as collateral

🚫Early fees on an asset-based loan may be more expensive than those on a conventional loan because of origination and management expenses.

🚫The lender will always quote the asset's value as less than its current market value. It means that you will qualify for a lower loan than you initially anticipated.


Considering all mentioned, it's fairly obvious that you must weigh both the advantages and disadvantages of obtaining an asset-based loan before applying for one.

What is the Total Amount You Can Expect to Get With Asset-Based Lending?

The loan-to-value ratio frequently comes up when we talk about asset-based lending. 

In the case of an asset-based loan, the loan-to-value ratio reads as "80% of marketable securities."

Therefore, the lender would only be ready to offer a loan of up to 80% of the market value of the marketable securities, according to this clause.

However, lenders are often ready to give better loan-to-value ratios for more liquid assets. 


In this formula, the loan amount is the amount the lender is willing to lend, and the asset's value is what you pledged as security for the loan.

Receivables and inventory often have 70% and 50% loan-to-value ratios, respectively.

What Are Eligibility Criteria for Asset-Based Lending?

To evaluate if a business qualifies for asset-based loans, a lender will consider the following factors:

1. Lenders may consider the company's financial history as part of their due diligence investigations of the borrower.

2. The necessary financing amount must equal the value of the borrower's assets and additional funds to pay costs associated with converting assets into liquid capital.

3. The lender will consider the value of the collateral's assets and how quickly they may be converted into cash if necessary.

Many institutions, for example, prefer them over physical assets due to the ease with which you can convert liquid assets into money.

4. You must provide proof that you have sold any stock or goods you use as collateral for a loan. It proves that your revenue stream is stable enough to cover your monthly facility costs.


In order to be eligible for asset-based lending and use your collateral for the loan, you must  demonstrate the market worth of your inventory

The terms and conditions of an asset-based loan are established based on the value and nature of the company's provided assets.

What’s more, the credit history, cash flow, and the number of years the business has been operating all affect how high your interest rates will be.

What Kinds of Assets Qualify for Asset-Based Loans?

Assets That Are Suitable as Collateral

The current and fixed assets are what a lender looks at when deciding whether or not to offer a loan to a potential borrower in the context of asset-backed lending.

The most frequent items used as collateral are listed below.

  • Customers' debts, as shown in the debtor book.
  • Items in stock, also including raw materials and unfinished products.
  • Assets easily convertible into cash include marketable securities, such as those on a balance sheet.
  • Property, land, and other immovable property equipment (PP&E), including machinery, office equipment, furniture, and automobiles.

Assets That Can’t Be Used as Collateral

In order to meet the requirements, an asset must have a high value, a low depreciation rate, or a high appreciation rate, in addition to being easily convertible into cash.

Therefore, a company with inadequate accounts receivables and ineligible assets will have difficulty obtaining an asset-based loan.

  • One example is a business with a sizable volume of inventory with product packaging and labeling that would become useless in the event of a name change or ownership. 
  • Another would be a business with inventory produced to a customer's specifications. 
  • Finally, perishable items may have expiration dates that reduce their value.

But, keep in mind that certain types of products are excluded, depending on the specific requirements of the financial provider.

For example, weapons, ammunition, tobacco products, branded watches, etc., are unsuitable.

Example of an Asset-based Loan

Ecommerce businesses may use asset-based finance to purchase additional merchandise, boost marketing efforts, and attract new consumers as demand rises.

Let's look at how asset-based lending works in the example of an online fashion retailer.

Problem: Fashion XZY needs quick access to £10 000 in cash to cover its production expenses

This business currently gives its customers up to 120 days to pay their bills, which means that four months could go by without making any more money.

Solution: Myos, for instance, can assist this business in regaining its financial flow.

It uses the assets of Fashion XZY as security for the loan, with the agreement that the lender will own the asset if the borrower can't pay back the loan in full.


Guidelines for Successful Asset-Based Loan Repayment

When repaying an asset-based loan, there are a few considerations to make.

🎯 Make all payments on time – Always make your payments on schedule, as this will help you build a good relationship with the lender, increasing your chances of being approved for additional financing in the future.

🎯 Analyze the loan agreement's conditions thoroughly – Doing so will assist you in gaining an understanding of all of the costs and fees that are associated with the loan.

🎯 Create a budget and stick to it – This method can help you adhere to your payment plan and stay out of financial trouble.

And lastly, before continuing with a loan from an asset-based lender, ask yourself the following crucial questions:

  • How long does the loan period last?
  • What is the interest rate?
  • What is the rate of advance against the different assets?
  • How much will I ultimately pay for said type of financing?
  • Are there fees associated with early repayment?


An excellent option for ecommerce businesses to receive the funding they want is through asset-based lending. You can use this funding to buy inventory, expand a business, or cover running costs.

Myos offers asset-based lending under fair conditions:

✔️You are not required to pay a lump sum or set amount that would penalize you if you paid back the funds early.

✔️You are solely responsible for paying a monthly fee on the remaining loan balance.

✔️How well your product scores will determine your fee.

✔️You will pay less if you repay early.

✔️There is no monthly schedule for your loan repayment. You pay back to release a portion of your collateralized inventory whenever you need, and can choose how much you want to pay.

How Does Myos Work?

Myos offers funding from €10,000 to €2,5 million.

For example, suppose you need to borrow €70,000 for six months, with a monthly fee of 1,60% on outstanding credit. In that case, your total cost is €2.251,85, corresponding to 3,22% of the total credit volume.


Myos offers total flexibility, and you only pay for what you need.

To be eligible for funding, you need to meet the following criteria:

  • Your company has a registered office in Germany, Austria, Cyprus, Estonia, or the United Kingdom (UK).
  • Your company has been in business for at least six months.
  • Your company has been selling goods for at least 50 days.

Asset-based loans are fast, flexible, and offer access to more funds than traditional financing options. So take advantage of the opportunity to unlock your company's true potential.

Discover the power of asset-based lending today and start transforming your business!


What’s the Difference between Asset-Based Lending vs Bank Financing?

Many banks provide asset-based financing. However, alternative lenders who offer more liquidity and quicker response provide ABL financing.

Am I Still Eligible for an Asset-Based Loan If I Sell My Products Abroad?

Many institutions that finance liabilities will also finance foreign accounts receivable or inventory located abroad.

What Kind of Assets Are Eligible for Asset-Based Loans?

You can utilize equipment, real estate, accounts receivable, inventories, and intellectual property.

Are the Interest Rates on Asset-Based Loans Reasonable?

Since the lender may recoup most of its losses if the borrower defaults on the loan, asset-based loans have significantly lower interest rates than unsecured loans.

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What is a Working Capital Loan - A Small Business Guide

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