Asset-Backed Securities Vs. Asset-Based Lending: What’s The Difference

The key to finding the right financing option for your business is research. Before putting your money at stake, you need to be aware of any risk factors, down payments, loan terms, and variables that impact interest rates. 

It’s also advisable to read up on the different types of investing and loan options to see which one fits your requirements best. The two most commonly confused options are asset-backed securities and asset-based lending.

Here are some of the key differences:

Asset-backed security

Asset-backed security, or ABS, refers to a financial investment vehicle that is obtained against collateral. This investment vehicle or security can be collateralized by a wide range of assets, such as loans, accounts receivables, leases, student loans, home equity, and even royalties. 

An asset-backed security is similar to mortgage-based security. The only difference is that the underlying financial security is not based on a mortgage. Investors use these securities to diversify their investments beyond just corporate loans. 

The sole purpose of investing in asset-based security is to generate cash and use it for lending. Even if the assets are illiquid, the owner can make them marketable through a process called securitization. This means pooling in a number of diverse assets to obtain an overall fair market value and financial security. 

In short, the value of security is derived from the collateralized and collective pool of assets. Neither of these assets can be sold individually since they’re mostly illiquid.

Asset-based lending

Unlike asset-backed securities, these are not income-generating financial assets. Asset-based lending refers to a type of loan that is secured against collateral. 

Both the interest rate and collateral are pre-decided and mutually agreed upon. However, the loan value that you will qualify for largely depends on a number of variables.

The similarity between this type of lending and the concept discussed above is the choice of assets. Most kinds of collateral that are used to secure Asset Based Loans are, in fact, asset-backed. This means that you can use receivables, royalties, and equities to collateralize an ABL loan, as well as a pool of asset-backed securities. 

Unlike asset-backed securities, the target market for Asset Based Lending is highly specific and doesn’t include everyone. The loan is especially suited for corporate borrowers who have impressive balance sheets and positive cash flow statements. 

Now that you know the differences, head over to Global Capital Partners Fund LLC. They provide a wide range of commercial real estate financing solutions including asset-based lending and hard money loans in Charlotte NCCharleston SC, and Columbia SC. To get started, drop them a message via their website. You can also give them a call at +1-800-514-7350.

Categories: Asset Based Lending

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