Asset Based Financing Asset based lending has become increasingly popular as a means of financing growth and providing working capital. Asset based financing is a general term whereby a lender accepts as collateral the assets of a company in exchange for a loan. Most asset based loans are financed against accounts receivable and less often, against inventory since receivables are among the most liquid of a company's assets followed by inventory. Receivables are favored by lenders since they self-liquidate in a short period of time by themselves and are not susceptible to problems such as shrinkage or physical damage. Another type of asset based lending rapidly gaining popularity is factoring.
Factoring is defined as the purchasing of a company's accounts receivable on a non-recourse basis.
Asset based lending may be the best source of working capital for companies in turnaround where traditional bank loans may not be available or for new and rapidly growing companies where high levels of growth cause the business cycle to outpace the collection of receivables. Long Term Debt Long term debt is one of the initial financing avenues a company should pursue. Most long term debt takes on the form of a loan where the interest and part of the principal are paid back in equal installments over the life of the loan. Then, as funds are generated later in the business cycle, the loan is repaid. Most commercial banks offer a revolving line of credit, where a fixed amount is available.