What is a Loan against Asset

Discover how you can borrow up to 80% of the asset value with an asset-based loan.
Get loans secured by your investments
3 mins
26-March-2025

Why let your valuable assets sit idle when they can unlock the funding you need? Asset-based loans (ABL) let you borrow against stocks, real estate, or other investments—giving you quick access to cash while keeping your assets intact. Whether you're looking to expand your business, seize a new investment opportunity, or cover urgent expenses, ABL offers a smart, flexible solution.

Asset-based loans (ABL), also known as asset-backed loans or simply asset loans, provide businesses and individuals with a flexible and reliable source of funding by leveraging their existing assets as collateral. In this article, we explore how asset-based loans work, their key benefits, and important considerations for both lenders and borrowers looking to secure financing.

Another popular form of asset-based lending is loans against securities, where individuals can borrow funds by pledging their stocks, bonds, or mutual funds as collateral. This allows borrowers to unlock liquidity without selling their investments, ensuring they continue to benefit from market growth. With competitive interest rates and quick approvals, loans against securities offer a convenient way to meet financial needs while maintaining portfolio stability.

Get instant funds without disrupting your investment portfolio! Apply now

What is an asset-based loan?

An asset-based loan is a type of financing that allows businesses/individuals to obtain a loan by offering their assets as collateral. These assets typically include accounts receivable, inventory, equipment, and real estate. The lender assesses the value of these assets and extends a line of credit, or a loan based on their estimated valuation. This form of financing is often used by customers facing short-term cash flow challenges or those seeking funds for growth and expansion opportunities.

How asset-based loans work

  1. Asset valuation: The first step in obtaining an asset-based loan is the assessment or valuation of assets. This evaluation is typically performed by the lender or a third-party appraiser to determine the current market value of the assets.
  2. Loan approval: Once the assets have been evaluated, the lender decides on the amount of the loan or line of credit they are willing to extend to the borrower. This amount is usually a percentage of the total value of the assets, which can vary based on the type and quality of the assets.
  3. Collateral: The assets being used as collateral serve as a safety net for the lender in case the borrower defaults on the loan. In the event of a default under the loan, the lender is entitled to enforce against the secured assets and recover its dues from the sale proceeds.
  4. Repayment: Borrowers are required to repay the loan according to the terms and conditions mentioned in the loan documents executed between the borrower and the lender. The interest rates, repayment schedules, and other loan terms can vary depending on the lender's policies.

Example of asset-based lending

Rahul finds himself in need of short-term funding amounting to Rs. 1,00,000 to cover urgent medical expenses. To secure this amount, he approaches a finance provider for asset-based lending. After evaluating his assets, the provider agrees to lend him 50% of his investment portfolio, which is valued at Rs. 1,60,000.

In this arrangement, the loan is secured against Rahul's share investments. This means that if Rahul fails to adhere to the repayment terms, the lender has the right to take ownership of his shares. The loan agreement stipulates that there are no long-term obligations or extended repayment terms, making it a straightforward and efficient solution for Rahul’s immediate financial need.

Benefits of asset-based loans

  1. Access to capital: Asset-based loans provide customers a valuable source of capital, even when they may not be eligible for traditional loans due to low credit score.
  2. Flexibility: ABLs are often more flexible than traditional loans. The amount of loan that may be approved against a particular asset depends upon increase or decrease in the value of the assets, making them suitable for customers with fluctuating needs.
  3. Quick funding: The approval process for asset-based loans can be faster than other financing options, making them ideal for borrowers that require rapid access to funds.
  4. Potential for growth: ABLs enable to leverage the existing assets of the customers to fund their business expansion, emergency needs, or take advantage of growth opportunities.

Asset-based loans provide a flexible and reliable way to access capital, even if you don’t qualify for traditional financing due to a low credit score. They offer quick approvals, ensuring fast access to funds when needed. Plus, since the loan amount is tied to the value of your investments, you get a customized borrowing experience that adapts to market fluctuations. Whether you’re funding business expansion, covering urgent expenses, or seizing new investment opportunities, ABLs let you leverage your investments without losing ownership.

So, why sell your investments when you can get a loan against them? Apply now

Eligibility for asset-based loans

To be eligible for asset-based loans, several criteria typically need to be met:

Valuable assets: The borrower must own assets of substantial value that can be used as collateral. Common assets include real estate, inventory, equipment, and investment portfolios.

Asset valuation: The assets must be appraised to determine their market value. Lenders usually finance a percentage of the asset's value, ensuring they can recover their funds in case of default.

Creditworthiness: While asset-based lending relies more on the value of the collateral, lenders may still consider the borrower’s credit history to assess the likelihood of timely repayment.

Clear ownership: The borrower must have clear and undisputed ownership of the assets being offered as collateral. Any existing liens or encumbrances can affect eligibility.

Business financials: For businesses seeking asset-based loans, financial statements, cash flow projections, and business plans may be required to demonstrate the ability to manage and repay the loan.

Regulatory compliance: The borrower must comply with any regulatory requirements or legal stipulations associated with the assets being used as collateral.

By meeting these eligibility criteria, borrowers can access funds through asset-based loans, leveraging the value of their assets to address their financial needs effectively.

Common types of loan against assets

  • Loan against commercial and residential property
  • Loan against cars
  • Loan against investments such as fixed deposits
  • Loan against securities like mutual funds, shares, bonds, Employee Stock Option Plans
  • Loan against insurance policies
  • Loan against valuables such as gold

Points to be noted by the borrowers

  • Attachment/ invocation of pledge in case of default: Borrowers should be aware that defaulting on an asset-based loan can lead to the seizure of their assets.
  • Cost: Asset-based loans may come with attractive interest rates than unsecured loans due to the collateral involved.

Conclusion

Asset-based loans are a valuable financial tool that provides customers with the means to secure funding by leveraging their assets. They offer flexibility, quick access to capital, and the potential for growth, making them a suitable choice for many businesses. However, both lenders and borrowers should carefully consider the associated risks and benefits before entering into an asset-based loan transaction and related loan documentation. When used wisely, asset-based loans can be a powerful instrument for achieving financial goals and fuelling business success.

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Frequently asked questions

Can we take loans on assets?

Yes, you can take loans on assets through asset-based lending. This type of loan uses your assets, such as real estate, equipment, inventory, securities, or accounts receivable, as collateral to secure the loan. The loan amount is determined by the value of your pledged assets, making it a flexible solution for those needing quick capital.

Leverage your securities to get a loan against them! Apply now

What is an example of a loan asset?

An example of a loan asset is real estate. You can use your property, like a home or commercial building as collateral for a loan. The lender evaluates the property’s value and extends a loan based on a percentage of that value.

Which assets are best to avail a loan?

Assets with an assessable value, like securities, real estate, or valuable equipment, are ideal for availing a loan. Lenders prefer assets that can be easily evaluated and liquidated in case of default.

What is the repayment tenure for a loan against assets?

Repayment tenures for loans against assets vary depending on the lender and the type of asset. Typically, these loans offer flexible repayment terms, which can range from a few months to several years, depending on the terms and conditions of the loan which may be incorporated in loan documents executed between the borrower and the lender.

Is a loan against assets cheaper than a personal loan?

In many cases, a loan against assets can be more cost-effective than a personal loan. The interest rates for asset-based loans are often lower because they are secured by collateral. However, the actual cost depends on the specific terms, the type of asset, and the lender's policies, so it is essential to compare options to determine the most cost-effective solution for your financial needs.

How much can I borrow against my assets?

The amount you can borrow against your assets depends on the type and value of the assets you offer as collateral. Lenders typically finance a percentage of the asset's market value, known as the loan-to-value (LTV) ratio. This ratio varies by asset type and lender policies but commonly ranges from 50% to 80%. For example, if you have an investment portfolio valued at Rs. 1,60,000 and the lender offers a 50% LTV ratio, you can borrow Rs. 80,000. The exact amount will be determined after the lender appraises your assets.

What are the interest rates for an asset-based loan?

Interest rates vary based on the asset type, lender, and borrower profile. Typically, they range from 8% to 15%, with lower rates for highly liquid assets.

How is the loan amount determined for asset-backed loans?

The loan amount is based on the asset’s value and loan-to-value (LTV) ratio, usually 50% of the asset’s market worth. More liquid assets receive higher LTVs.

What happens if I can’t repay my asset-based loan?

If you fail to repay, the lender may seize and sell the asset to recover the outstanding amount. Any remaining shortfall remains your responsibility.

Show More Show Less