More commonly however, the phrase is used to describe lending to business and large corporations using assets not normally used in other loans.
[1] Asset-based lending in this more specific sense is possible only in certain countries whose legal systems allow borrowers to pledge such assets to lenders as collateral for loans (through the creation of enforceable security interests).
[3] An example of asset-based loan usage was when the global securitization market shrank to an all-time low after the collapse of investment bank Lehman Brothers Holdings Inc in 2008.
Asset-based lending, once considered a last-resort finance option, has become a popular choice for companies and individuals that do not have the credit ratings, track record, or patience to pursue more traditional capital sources.
The primary timing issue involves what are known as accounts receivables—the delay between selling something to a customer and receiving payment for it.
[2] Factoring of receivables is a subset of asset-based lending (which uses inventory or other assets as collateral).