Asset-based lending

Asset-based lending begins with assets a lender can assess, such as machinery or eligible customer receivables. The relevant quantity is not automatically the balance-sheet carrying value. Eligibility, ownership, existing security, realization assumptions and an advance rate determine how much borrowing a particular asset pool may support. A useful financing estimate shows every step from recorded assets to available proceeds.

The collection’s machinery example moves from £1m book value to an £800k appraisal on a stated disposal basis, then applies an 80% advance to obtain £640k. Applying the rate directly to book value would overstate the illustration by £160k. The assumptions are educational and do not represent an executed lender quote. Watch source

Asset support and business quality answer different questions. A profitable service company that collects invoices quickly may have little machinery or receivables collateral. The Irish target discussions make that tension concrete: attractive earnings do not necessarily create an asset-based borrowing base. Conversely, assets do not remove the need to service repayments from cash. Sey’s simplified contrast between cash-flow and asset-based borrowing introduces the idea but does not classify every loan’s security or provider. Evaluate collateral, cash generation and contractual terms together, and do not count assets already supporting another facility as free new capacity. Watch source Watch source

Follow the connections

Collateral · Receivables finance · Capital stack.

Continue in the course: Asset-based finance.