When their business requires an infusion of cash, many owners look for non-traditional loan options. Asset based lending is an ideal solution to meet the business’ cash needs while avoiding a traditional bank loan. With this funding option, the business uses the company’s physical assets as collateral for the loan. The lender calculates the amount of the loan based on the type of asset and the appraised value of the asset. Let’s take a look at some of the items the business can choose to use as collateral.

Real Estate

Commercial real estate is typically a business’ most valuable asset. Most business owners turn to this high-value option as collateral. However, commercial real estate is typically less liquid than other assets. Business owners need to ensure that all property is in the business name for this loan. Most lenders pair real estate with additional assets to minimize risk.

Machinery and Equipment

When the business owns its equipment, it can be used as collateral for asset based lending. Lenders look favorably on an applicant using this as collateral. Most commercial machinery and equipment are easy to appraise and quick to resale. Even though the loan-to-value ratio may be lower, many times the liquidity of the machinery gives it a higher value, and the lender offers to loan the business more money.


Using physical inventory as collateral is a smart business strategy. The lender determines the inventory value based on the potential resale value, not the retail value. Business owners should make sure they have a successful inventory management system in place if they choose to use this collateral.

Purchase Orders

Lenders may also consider using existing purchase orders as collateral. They calculate a value for each PO based on creditworthiness and the amount owed. Once the PO is fulfilled, the funds are dispersed to the borrower.

Accounts Receivable

Lenders may consider accepting outstanding accounts receivables as a source for funding. The lender reviews unpaid invoices and places a value on them. This value is calculated based on the amount owed and the age of the invoices. The lender will collect the payment and send the borrower a percentage based on the agreed upon terms.

Asset based lending options are a great way to infuse capital into a business. They have fast approval times and lenders are generous to businesses that have less-than-stellar credit. They are effective at helping businesses maintain a positive cash flow.