What Is It?
Asset-based financing lets a business access liquidity from its own assets — accounts receivable, inventory, equipment, or other eligible assets — rather than relying solely on cash-flow credit. It includes several related structures: asset-based lending (a revolving line against a borrowing base of assets), accounts receivable financing (borrowing against eligible receivables), and invoice factoring (selling specific invoices for immediate cash). Each works differently and suits different situations.
When It May Make Sense
- Businesses with strong receivables but uneven cash flow timing
- Companies that need liquidity and have eligible assets to borrow against
- Situations where traditional cash-flow credit isn't available or sufficient
- B2B businesses with creditworthy customers and outstanding invoices
When It May Not Make Sense
- Businesses with few eligible assets or weak receivables
- Situations where the cost of asset-based capital exceeds the return
- Companies that can qualify for lower-cost conventional financing
- Borrowers uncomfortable with lender monitoring of receivables or inventory
What Lenders Typically Evaluate
- Quality and concentration of accounts receivable
- Aging of receivables and customer creditworthiness
- Eligible inventory and its liquidity
- Equipment value (where applicable)
- Borrowing base formula and advance rates
- Business financials and cash flow
- Reporting and reconciliation capabilities
Potential Benefits
- Access liquidity tied to the value of assets you already hold
- Revolving structures can flex with receivables and inventory
- Can fund faster than traditional cash-flow loans in some cases
- Factoring provides immediate cash on specific invoices
Risks & Considerations
- Costs can be higher than conventional financing
- Borrowing base can shrink if receivables age or customers don't pay
- Lender monitoring and reporting requirements are more involved
- Factoring customers may notice the arrangement depending on structure
What to Prepare
Common items lenders may request — requirements vary by program and lender.
- Aging accounts receivable report
- Customer concentration analysis
- Inventory listing (where applicable)
- Business financials and cash flow
- Equipment schedule (where applicable)
- Receivables and payable reporting processes
Asset-Based Lending
An asset-based loan is a revolving facility secured by a borrowing base of eligible business assets — typically accounts receivable, inventory, and equipment. As the assets turn over, the available credit flexes with them. It can be appropriate for businesses that have substantial eligible assets but don't qualify for (or outgrow) traditional cash-flow credit.
Accounts Receivable Financing
Accounts receivable financing is a borrowing arrangement where your eligible receivables serve as collateral for a line of credit. You retain the relationship with your customers and draw against the line as needed, repaying as invoices are collected. It can help businesses smooth out the gap between issuing invoices and getting paid.
Invoice Factoring
Invoice factoring is the sale of specific invoices to a factor in exchange for immediate cash, usually at a discount. Unlike a loan, factoring is a transaction on the invoice itself. It can provide quick liquidity for B2B businesses with creditworthy customers, though the cost and structure differ from traditional borrowing.
Frequently Asked Questions
Accounts receivable financing is a borrowing arrangement where receivables serve as collateral for a line of credit. Invoice factoring is a sale — you sell specific invoices to a factor for immediate cash, usually at a discount. AR financing keeps the relationship with your customers; factoring may involve the factor collecting directly, depending on the structure.
A borrowing base is the formula a lender uses to determine how much you can borrow against eligible assets — for example, a percentage of eligible receivables plus a percentage of eligible inventory. As your receivables or inventory change, the available credit flexes with them.
No. Factoring is the sale of an invoice (or invoices) to a third party at a discount in exchange for immediate cash. It is not a traditional loan, though it serves a similar purpose — providing liquidity before the customer pays.
Explore Your Options
Submit your information and our team will review which available capital structures may be appropriate for your business or project.
Financing is subject to underwriting, eligibility, and approval. Products, terms, and availability vary by program and lender. Submitting information does not guarantee approval or funding. This page is educational and is not financial, legal, tax, or investment advice.