Non Current Asset: Asset Based Lending

A described non current asset of an Asset based lending business of providing loans on the basis of assets is given by the borrower as collateral security. Assets used may be either fixed for permanent assets such as land, building, equipment, etc. or current assets such as stock, accounts receivable etc. Asset based lending is also known as secured lending. Asset based lending is the most common form of lending on the market.

Asset based loans are provided for periods ranging from 6 months to 3 years or more. Asset based lending is suitable to meet the cash flow requirements of companies. These loans are used by the companies for various purposes such as working capital, debt refinancing, mergers and purchase of assets etc.

Rates of interest on asset based lending are lower than those of unsecured loans. This is because, the lender has the power to take over the assets of the borrower if the borrower defaults the loan payment. However, the borrowers are more prone to lose their valuable assets in the eventuality of non payment.

Asset based lending has many benefits over traditional methods of financing. The borrowers get more liquidity and fewer financial covenants. Asset based loans are generally provided by lenders on the basis of some conditions to be followed by the borrowers.

Consumers of asset based loans include retailers, wholesalers, producers, distributors, public companies, private firms etc. The following are benefited by asset based lending - companies having past losses, companies having negative cash flow, companies having less operating period, fast growing companies.