What is asset-based lending?

Asset-based lending is financing secured by company assets such as accounts receivable, equipment, or inventory, with borrowing capacity tied to asset values rather than just cash flow or creditworthiness. For professional service firms, receivables are typically the primary asset available for asset-based lending.

Key characteristics

• Secured by company assets

• Borrowing tied to asset values

• Receivables are common collateral for services

• May offer more capacity than unsecured

• Requires asset monitoring and reporting

• Interest rates vary by risk

Why it matters for professional service firms

Asset-based lending can provide financing when traditional loans are unavailable or insufficient. For professional service firms with significant receivables, AR-based lending provides working capital tied to billing activity. This can bridge cash timing gaps or fund growth. Understand the costs and requirements before committing.

Real-world example

Michelle's firm needed working capital for expansion, but did not qualify for a traditional bank loan. Asset-based lending solution: revolving credit line secured by receivables, borrowing up to 80% of eligible AR (under 90 days, creditworthy clients). With $400K in eligible AR and $320K in available borrowing. Cost: prime plus 3% interest plus 0.5% monthly facility fee. Requirements: weekly AR reporting, lender verification of receivables. The facility provided growth capital while the firm built the track record for traditional financing.