Asset based lending – what is it?

Anabel Ah-Lim

Group Finance & Operations Director

February 9, 2024

Asset based lending allows your business to use assets as collateral to secure a business loan.

Unlike traditional loans, asset based lending focuses on the value of the assets rather than your creditworthiness such as profitability and working capital.

What is a liquidity ratio. Understanding your business finances

Assets such as property, accounts receivable (invoices), machinery and equipment and inventory can all be used as collateral against the loan. The amount of money that can be borrowed will be influenced by the value of the asset.

Asset based lending can be incredibly useful if your business operates seasonally, is suffering with cash flow problems, you are looking to expand or want to keep hold of your equity.

How does asset based lending work?

The amount of money your business could get from your assets depends entirely on what they are and what they are worth. In order to work this out the lender will use what’s called a loan to value ratio (LTV). There will be variations in the interest rate you will received based on the lender and will take into account factors such as your credit history, cash flow and the number of years you have been trading. For example, if you want to use your unpaid invoices as collateral you could get up to 100% of its value.

The easier the asset is to turn into cash (it’s liquidity) the more likely you are to get a bigger loan with lower interest rates from your lender. This is why assets like invoices are seen as better collateral than physical assets such as equipment. These can be difficult and time consuming to sell should you not be able to make the repayments on your loan.

Always make sure that you can afford repayments on loans before signing agreements and putting your assets at risk.  

What assets can I use for asset based lending?

There are various assets you can use for collateral against your loan:

  1. Unpaid invoices – Lenders will offer up to 100% of the unpaid invoice value.
  2. Equipment – Machinery, vehicles and specialist equipment that’s owned by your business can be used as collateral.
  3. Property – Any commercial property that you own can be valued and used against the loan.
  4. Inventory – Lenders may consider the liquidation values of such assets as raw materials owned by your business.
  5. Intangible assets – Some providers will consider assets such as intellectual property, trademarks and high value long term contracts as usable assets.


What are the pros and cons of asset based lending?



Is asset based lending right for my business?

When deciding if asset based lending is right for your business you will need to consider some key questions:

  • Do you have valuable assets to use as collateral?
  • Are you facing cash flow fluctuations and require working capital?
  • Are you looking for cash to grow or expand your business?
  • Are you comfortable with potential limitations being imposed on your asset use if the lender requires?
  • Are you able to handle the potential loss off assets if you can’t keep up with repayments?

By asking yourself these questions you can come to a decision whether asset based lending is the right choice for you and your business.

If you have decided the answer is yes, then let’s take a look at how to apply.

How do I apply for asset based lending?

Before committing to asset based lending you will need to look at your businesses’ financial situation, your future objectives and what lenders are offering you.

In the UK there are a wide range of lenders offering asset based finance. They will initially look at whether you are an established business with a solid trading history and substantial assets.

Lenders will have their own lending criteria and due diligence checks.

Here are some questions to ask yourself when comparing asset based lending quotes

  • What is the advance rate against your various assets?
  • What is the interest rate?
  • How much will the finance facility cost you over the long term?
  • How long is the loan period?
  • What are the charges for early settlement?

A way of ensuring you are getting the right deal for is to consult with experts. they can help you find the right deal that aligns with your business needs and goals. Asset based lending is a big financial commitment so make sure you make an informed decision for your business.


Touch Financial are experts in invoice financing which is extremely popular form of asset based lending favoured by many businesses across the UK.

If you would like to speak to one of our friendly and experienced team then fill out our quick form and they will call you back.

Don’t just take our word for it, listen to how our customers rated us excellent on TrustPilot

Trusted by customers and industry