Asset finance loans or asset financing denotes using the balance sheet assets of a company, including inventory, accounts receivable and short-term investments, to get a loan or borrow money. The party borrowing the money should furnish the lender security interest in their assets. Security interest is basically a legal right a debtor grants to a creditor on the property of the debtor. This is unlike traditional financing, since the borrowing firm would then have to offer a portion of its assets.
Asset financing is commonly used when borrower requirements are short-term. Generally, the borrowing entity that resorts to asset financing would pledge its accounts receivable. But inventory assets’ usage in borrowing money has become quite common and popular in recent times. In asset financing, in case other assets are utilized to help the borrower qualify for the loan, the assets would not be considered as direct collateral.
