asset-based lending

Type of financing in which the asset being bought (such as inventory, land, or machine) is used as a collateral. In asset based lending, the quality of the collateral and not the financial strength of the borrower is of prime importance. The lender bases the amount of loan on the value of the asset being financed, and the ease with which it could be sold off if the borrower defaults. It is a type of 'off balance sheet' financing, and is also called asset based financing, asset financing, or commercial finance. See also discounting of accounts receivable and factoring.