Published on Apr 3, 2025Updated on Sept 1, 2026
Asset-based loans or ABL loans have become a widely used source of business financing. These loans allow businesses to leverage their existing tangible assets to secure the funding they need for operations and growth.
In this article, we explore what an asset-based loan is, its benefits and drawbacks, and debunk common myths surrounding these loans.
An asset-based or asset-backed loan is a type of business financing that is secured against a company’s assets. Examples of assets that businesses can pledge include inventory, equipment, or real estate. This financing method allows companies to access funds based on the value of their tangible assets, rather than relying solely on their creditworthiness.
In asset-based lending, lenders evaluate the value of the pledged assets and then extend credit which is a percentage of that value. If the borrower defaults, the lender can seize the pledged assets to recover the loan. However, the final loan eligibility, approved amount, interest rates, and terms are also influenced by factors such as the business’s age, creditworthiness, cash flow, and lender policies at the time of application.
The types of asset-based loans can vary based on the collateral used. Here are some common types:
The eligibility requirements can vary depending on the lender, but here are some factors lenders generally consider:
When selecting the right type of asset-based loan, here are some things to remember:
These are the steps you can follow to apply for an asset-based loan:
Businesses of all sizes can qualify for asset-based loans as long as they meet the eligibility criteria and have sufficient collateral.
While credit is an important factor, asset-based loans depend more on asset value than credit score. Hence, businesses with slightly lower credit scores may still be able to access funds.
With proper financial records and asset documentation, the process can be streamlined, leading to quicker approvals. However, the exact processing times will vary by lender.
Not all lenders require personal guarantees, though this depends on the lender’s policies and the perceived risk.
The funds from an asset-based loan can be used for various purposes such as inventory purchase, upgrading equipment, and so on.
Even financially stable companies can use asset-based loans to capitalise on growth or expansion opportunities.
Since these loans are backed by collateral, they often come with lower interest rates than unsecured loans, reducing the overall borrowing cost.
Asset-based loans can be a viable source of funds for businesses that hold valuable assets. However, it is essential to research different loan types and lenders to find the best fit for your business needs.
For businesses looking to expand, SMFG India Credit offers Loans Against Property of up to 70%* of the property’s market value at competitive interest rates.
If you’re seeking unsecured financing, we offer business loans of up to INR 1 crore* with no collateral required. Apply online today for your preferred loan option or get in touch with us for dedicated assistance in choosing the best solution for your business.
Important Note: This article is for general informational purposes only and may be subject to change from time to time. As product features, eligibility criteria, interest rates, charges, fees, tenures and other terms may be revised as per SMFG India Credit's policies, readers are advised to refer to the latest details from the respective product pages (please select from the top menu). For the latest loan charges, please visit Charges & Fees Link and for the latest Interest rates, please visit Interest Rate Rationale. Please note that final loan terms, disbursement process and eligibility criteria will depend on SMFG India Credit's policies at the time of loan application.
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Examples include Loans Against Property, invoice financing, and inventory financing.
Yes, early repayment is usually allowed, but some lenders may apply prepayment penalties as per their policy.
The lender can seize the pledged assets to recover the outstanding amount.
Yes, common fees include processing charges, prepayment penalties, and late payment fees.
Approval can take a few days to weeks, depending on asset valuation, applicant eligibility, and lender policies.
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