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Asset-Based vs Cash-Based Lending: What’s the Difference?

There are different types of loans that you can use to finance your business, most of which fall under the category of asset-based or cash-based lending. Whether you’re looking to launch a new line of products, open a new branch, upgrade equipment or simply cover operational expenses, you may need capital. Fortunately, there are lenders who specialize in providing financial assistance to businesses. You should learn the differences between asset-based and cash-based lending, however, before applying for a loan.

Asset-Based vs Cash-Based Lending: What’s the Difference?

What Is Asset-Based Lending?

Asset-based lending refers to the use of a secured, collateral-backed loan. Most businesses have assets. Some of them have real property, whereas others have stocks and bonds. If your business has assets, you can use them to obtain a secured loan.

What Is Cash-Based Lending?

Cash-based lending refers to the use of an unsecured loan that’s based on your business’s cash flow. Unsecured loans are those that don’t require collateral. Lenders won’t require you to guarantee unsecured loans with collateral. Instead, they’ll determine your eligibility by looking at other factors, such as your business’s cash flow.

Differences Between Asset-Based and Cash-Based Lending

While they both involve borrowing money from a lender, asset-based and cash-based lending aren’t the same. Asset-based lending requires collateral. While there are different types of asset-based lending, they all require collateral. You’ll have to provide the lender with one or more assets to obtain an asset-based loan.

Cash-based lending doesn’t require collateral. When you apply for a cash-based loan, the lender will evaluate your business’s cash flow. Lenders want to know that you’ll be able to repay the loan, so they’ll consider your business’s historic and projected cash flow. A strong cash flow will increase your chance of getting approved for a cash-based loan.

In addition to evaluating your business’s cash flow, the lender may check your credit history. If you have poor credit or no credit, you may struggle to obtain a cash-based loan. Asset-based loans are different. Since they are backed by collateral, they typically don’t require good credit.

In Conclusion

Asset-based and cash-based lending aren’t the same. Asset-based lending consists of secured loans, as well as secured lines of credit, that require collateral. Cash-based lending, on the other hand, takes into account your business’s cash flow without requiring collateral.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • May 5, 2022


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