Asset-Based Lending: How It Works & When These Loans Are the Best Option

Asset-Based Lending: Secured Business Loans

Learn how asset-based lending works, what collateral you can use, and when an asset-based loan is the right financing option for your business.

Easy approval

Receive funding within one to 10 business days

Loan amount up to $5M

Interest rates as low as 5%

Flexible and transparent terms

Free consultation with our lending advisers

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Won't impact your credit

Comparing Asset-Based Loans to Other Financing Options

Choosing the right type of financing starts with understanding how asset-based loans differ from traditional unsecured loans. While both can provide working capital, they serve different business needs. Asset-based lending relies on the value of your collateral, such as invoices, inventory, equipment, or machinery, while unsecured loans depend heavily on credit scores, cash flow, and financial history. The table below gives a clear side-by-side comparison to help you decide which option aligns best with your situation.

Asset-Based Loans vs. Other Financial Options
Feature	Asset-based loans	Unsecured loans
Collateral required	Yes — backed by assets like receivables, equipment, inventory, or IP	No collateral required
Approval factors	Based on asset value and quality; less emphasis on credit score	Based on credit score, cash flow, and financial history
Interest rates	Typically lower because the loan is secured	Higher due to increased lender risk
Borrowing limits	Higher limits tied to asset value; ideal for companies with significant collateral	Lower limits based on credit strength and revenue
Speed of approval	Faster when strong collateral is available	May take longer due to stricter underwriting
Best for	Businesses with valuable variable or fixed assets, seasonal cash flow issues, or lower credit	Companies with strong credit and stable revenue but limited collateral
Examples of use cases	Using unpaid invoices or inventory to secure funding; equipment-backed credit lines	Short-term fixed loans for companies with strong financials but no collateral

Minimum Requirements

Here's the basics you need to qualify for an asset-based business loan. Even if you have bad credit, your Clarify advisor will help you explore funding options based on your FICO score.

Over $10,000/month in gross revenue

Your company must be earning at least $10K per month in gross sales.

At least 550 credit score

You can get approved with any FICO credit rating. But lenders often give terms and rates depending on your creditworthiness.

Minimum 6 months in business

Your company should be operational for over six months. Ideally, over one year. This shows lenders that your business is sustainable and won't default on the loan.

Have a business bank account

Your Clarify advisor will ask for 3 months of your most recent bank statements to verify income.

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Benefits of Asset-Based Loans

Whether you need cash flow to cover expenses or want to make investments to grow your business, an asset-based loan can provide the funding you need as a revolving line of credit. Compared to unsecured loans, these types of loans are available to small businesses and midsize companies that can provide collateral as a borrowing base to secure funding.

The following are some of the key benefits you get when you apply for a loan with Clarify.

Minimal Paperwork

Unlike a traditional bank, there is minimal paperwork required to get approved for an asset-based loan via our lending network. We have streamlined the application process to be quick and easy.

Lowest Interest Rates

When lenders compete, you win. Your loan adviser at Clarify will do all the legwork to get you the best interest rate possible in the industry. We've worked with borrowers who have varying levels of business credit to assist them in the credit approval process. You can focus on running your business without having to apply to multiple lenders.

Lending Concierge

With decades of experience under our belt, your dedicated loan adviser at Clarify is your most trusted resource. Your adviser will jump through all the hoops needed to ensure your financing exceeds your expectations with minimum covenants.

Cover Short-Term Cash Flow Needs

Every business has short-term demands for working capital to pay off expenses, increase liquidity, and invest in growth. Instead of high-interest credit cards, an asset-based financing solution helps you cover all those needs and set your balance sheet on the path to success.

Complete Transparency

There are no hidden fees or unknowns with Clarify — what you see is what you get. We walk you through all the terms and important metrics so you can choose the right financing option for your business. We take pride in bringing transparency to the lending industry.

Flexible Payment Terms

Most asset-based financing is structured as a revolving line of credit. This allows you to borrow capital as needed based on your asset value to cover ongoing capital expenditures.

Common Uses for Asset-Based Loans

Business owners choose to allocate working capital in a number of ways. Below, we've outlined the most popular ways asset-based loans are used.

Supplies and Inventory

Purchase what you need for your daily operations with an asset-based loan. Orders get fulfilled on time, and you have the resources you need to achieve success.

Recurring Expenses

Funds can be allocated toward everyday expenses, like rent and utilities. If revenue has dropped and you're having trouble covering fixed costs, we've got you covered.

Growing Your Company

Scaling growth can require you to invest capital upfront. Having additional cash on hand will help you build out your company as you expand.

Equipment and Machinery

Certain industries require special machinery to get the job done, while others require basic equipment to accommodate customers and clients. Equipment financing using asset-based loans makes purchasing new and used equipment possible for every business owner. You can also discuss refinancing options with us to refinance equipment you own over time.

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Alternatives to Secured Loans

Here are common alternative funding solutions to asset-based loans. Your dedicated Clarify advisor will help you explore all options.

FAQs About Asset-Based Loans

Here are the most frequently asked questions to provide clarity and guide you through the process of secured business loans.

What Is an Asset-Based Loan?

Asset-based loans, often offered through commercial lenders and, in some cases, an investment bank, are asset-based lending solutions that let businesses borrow money by using their receivables, inventory, equipment, or other assets as collateral. Because the loan is secured, lenders can structure the funding as a revolving credit facility and may set transparent financial covenants to ensure the company maintains the asset quality needed to support the loan.

How Do Asset-Based Loans Differ From Traditional Bank Loans?

Unlike traditional loans that may rely heavily on credit scores and financial histories, asset-based loans primarily focus on the value and quality of the assets being used as collateral.

Is My Business a Good Fit for an Asset-Based Loan?

Businesses with significant tangible assets, like manufacturers, wholesalers, and distributors, often benefit the most from asset-based lending.

What Happens if I Default on an Asset-Based Loan?

If you default, the lender has the right to seize the assets used as collateral to recover the outstanding loan amount.

What Assets Can Be Used for Asset-Based Lending?

Lenders commonly accept accounts receivable, inventory, and certain equipment as collateral, and some may also consider real estate or intellectual property. These types of assets form the basis for financing options such as accounts receivable loans, inventory financing, and other collateralized business loan structures.

How Are the Loan Amounts Determined in Asset-Based Lending?

Loan amounts are usually a percentage of the value of the secured assets, commonly known as advance rates. For instance, you might get 80% of your accounts receivable value or 50% of your inventory value.

Are the Interest Rates Higher for Asset-Based Loans Compared to Other Types of Loans?

Interest rates can vary, but because these loans are secured by assets, they can often offer more competitive rates than unsecured loans.

When To Choose an Asset-Based Loan?

An asset-based loan is a strong option when your business has valuable collateral, such as inventory, equipment, or unpaid invoices, but your credit score, cash flow, or time in business might limit traditional borrowing options. It's also a good fit when you need a larger credit facility than your cash flow alone can support, or when your revenue is seasonal, and you want financing that adjusts with your asset levels. This type of loan works especially well for companies seeking flexible working capital, funding for growth, or support during periods of restructuring or expansion.