The Benefits of Asset-Based Lending

Asset-based lending is a general term for any loan secured against equity or an asset. Mortgages, car loans and personal loans may all be examples of asset-based lending depending on how they are structured. Less common asset-based loans include stock-secured loans and savings-secured loans. In each case, the borrower uses an asset as collateral to achieve a loan. While there are inherent risks involved in posting collateral for a loan, the benefits will often outweigh those risks.

Easier Loan Qualifications

Your loan application will meet much less strict requirements if you are willing to secure the loan against an asset. The lender will often consider the value of the asset to be the most important feature in determining your loan limits. The lender is assuming very little risk in this case; even if you default, they can seize the asset and sell it to recoup their losses. This is particularly useful to individuals who have low credit scores or low incomes.

Recent college graduates will often need to secure a loan against collateral since their credit histories are not long enough to justify financing. Similarly, individuals who have recently started a new job or business may need to secure a loan. With an inconsistent salary history, banks will consider a borrower high risk, typically regardless of a credit score. 

Lower Interest Rates

When a borrower assumes the risk in a financing contract, the interest rates will be lower. Lenders raise rates based on the amount of risk they are taking on in a loan. If you can assure a lender against risk when you are seeking a commercial, you can achieve much lower financing rates. You will usually get a better deal on highly-liquid assets.

For example, you will be able to secure more financing against stock-certificates than you will against a home in most cases. This is because the stock can be immediately sold if the lender seizes the asset. A home may take awhile to sell, and during that time the lender will have fees like maintenance assessed. Asset based finance against a savings account for example, will yield higher limits than a loan secured against a car for the same value.

Using Your Equity

Most adults have more money tied up in equity than they do in cash. This means they have more value in stocks, savings, homes and autos than they do sitting in their bank accounts. This equity yours to use and put to work. Using your equity to achieve financing is a key benefit to having equity in the first place. Instead of selling an asset in order to get the money you need for another purchase, you can hold on to that asset, allow it to continue to grow in value, and still get a loan against the asset to expand your financial holdings.