What Is Asset Based Lending? A Guide for UK Businesses

Asset based lending is a type of secured business finance that lets you borrow against the value of assets your business already owns, such as unpaid invoices, stock, equipment or property, rather than relying on profit or turnover alone. It can be arranged as a lump sum term loan or a revolving facility you draw down and repay as your needs change. This guide covers how it works, the different types available, what it typically costs, and whether your business would be eligible.

What is asset based lending?

Asset based lending is a form of secured finance that uses one or more of your business assets as security, rather than relying on cash flow and credit history alone. Lenders look at assets such as unpaid customer invoices, stock, machinery, property, or even intellectual property like brands and patents, and lend against a portion of their value. It differs from a standard secured business loan in one key way. Rather than lending against a single asset, it can combine several types of assets into one facility. This releases cash from across everything your business owns, rather than just one item, which is why it can suit asset rich businesses that need more funding than an unsecured loan or a single product like invoice finance would allow.

How does asset based lending work?

Asset based lending works by a lender valuing your business assets, then offering a facility based on a percentage of that value, known as the loan to value or advance rate. The amount you can borrow depends on two things: the type of asset and how easily it could be sold if your business defaulted, known as its liquidity. Assets that convert to cash quickly, like invoices or marketable securities, typically support a higher advance rate, while physical assets that take longer to sell, like machinery or stock, usually support a lower one. Once a facility is in place, an independent valuer checks and revalues your assets regularly, often monthly or quarterly, to make sure they still cover the amount lent.

What are the types of asset based lending?

Asset based lending isn't a single fixed product, it covers a range of specific finance types depending on which assets are involved and how you want to draw down and repay funds.

Invoice discounting: You draw down a percentage of your unpaid invoices while keeping control of chasing payment yourself, with the arrangement usually kept confidential from your customers.
Invoice factoring: The lender advances funds against your invoices and takes over credit control, chasing payment from your customers directly on your behalf.
Hire purchase: You pay fixed instalments to use an asset such as machinery or a vehicle, and take ownership of it once the final payment is made.
Leasing: You pay to use an asset, such as equipment or vehicles, over an agreed period, with the lender retaining ownership throughout, sometimes with an option to buy at the end of the term.
Asset based term loan: You receive a lump sum secured against the value of assets like property, stock or machinery, and repay it in fixed instalments over an agreed term.

What assets can you use for asset based lending?

Most physical assets, and some non physical ones like brands or patents, can be used as security. How much you can borrow against each one depends largely on how quickly it could be sold if needed.

Asset type	What it includes	Typical advance rate
Receivables	Unpaid customer invoices	Around 80% to 90% of invoice value
Inventory	Raw materials, stock and finished goods	Around 50% of stock value
Plant and machinery	Manufacturing equipment, tools, vehicles	Around 50% to 80% of valuation
Property	Commercial premises, land, buildings	Around 65% to 75% of valuation
Intellectual property	Brands, patents, trademarks	Assessed case by case

These figures are a general guide only, since every lender sets its own advance rates based on the specific asset, its condition and how quickly it could be sold. Our asset finance calculator gives an instant estimate if equipment or machinery is the main asset you plan to borrow against.

Is asset based lending the same as invoice finance or asset finance?

Asset based lending, invoice finance and asset finance all use business assets as security, but they are not the same thing, and the difference usually comes down to how many asset types are included and what the funding is used for.

Type of finance	What it's secured against	Best suited to
Asset based lending	Several types of assets combined, such as invoices, stock, equipment and property	Established businesses needing a larger facility across everything they own
Invoice finance	Unpaid customer invoices only	Businesses waiting on slow paying customers
Asset finance	A single new or existing asset, like a vehicle or machine	Buying or refinancing one specific piece of equipment

In practice, many asset based lending facilities are built around your unpaid invoices as the core, similar to invoice factoring or invoice discounting, with additional lending layered on top against stock, equipment or property. This is what allows the facility to grow beyond what invoice finance alone would support.

What is asset based lending used for?

Asset based lending tends to suit businesses that are asset rich, growing quickly, or going through a significant change, since it can unlock more funding than an unsecured loan while keeping repayment terms tied to the value of what you already own. Common uses include:

Funding a management buyout, where the existing managers buy the business
Supporting an acquisition or merger
Refinancing existing debt onto better terms
Restructuring the business or working through a difficult trading period
Funding fast growth, when day to day cash needs grow faster than profit
Freeing up cash tied up in stock, machinery or property so it can be reinvested

Businesses funding stock purchases or supplier orders specifically, rather than a broader balance sheet facility, are often better matched to trade finance instead.

What are the benefits of asset based lending?

Asset based lending can suit growing or asset rich businesses better than a standard loan, for a few key reasons.

Higher funding levels. Combining several types of assets typically unlocks more money than an unsecured loan or a single asset facility would allow.
Flexibility. There are usually fewer rules on how you can spend the funds, compared with facilities that come with strict conditions attached.
You keep control. You raise money without giving up a share of your business, unlike bringing in an investor.
Funding that grows with you. Because the value of your invoices and stock moves with your sales, the facility can grow alongside your business, without a fresh application each time.
Can be combined with other finance. Asset based lending can sit alongside other products, such as a business loan or credit line, rather than replacing them entirely.

What are the risks of asset based lending?

Securing a facility against your assets brings a few trade offs worth weighing up before you apply.

Your assets are at risk. If you fall behind on repayments, the lender can take and sell the assets you've put up as security.
Ongoing checks. Your assets are regularly reviewed and revalued, which some businesses find more hands on than a standard loan.
Credit checks apply. Lenders carry out credit and background checks as part of the application, which will show on your credit report.
Charges for early repayment or default. Most facilities carry fees if you repay early or fall behind on payments.
Funding can fall if asset values drop. Since the amount available is tied to what your assets are worth, a fall in stock value or a slow down in invoices can reduce what you can draw down.

Am I eligible for asset based lending?

Asset based lending is generally aimed at businesses with valuable, documented assets on their balance sheet. Lenders typically look at:

The type and value of the assets you're offering as security
Regular sales of any inventory used as security, showing it converts to cash reliably
Your business credit history

Capitalise works with a panel of 130+ UK lenders, including specialists in asset based and invoice finance, so using your Capitalise account to check your eligibility will show what's realistically available for your business.

How much does asset based lending cost?

Asset based lending is usually priced as a margin on top of the Bank of England base rate, currently 3.75%, plus arrangement and ongoing monitoring fees.

Cost element	Typical range
Interest margin	Around 2 to 6 percentage points above the Bank of England base rate
Arrangement fee	Typically 1% to 2% of the facility value
Monitoring fees	Charged periodically, often quarterly, to check and revalue your assets
Early repayment or exit fees	Vary by lender, worth checking before you sign
Funding speed	Often around 4 weeks from application to funds, longer than invoice finance alone

Because pricing depends heavily on the assets involved and how they're valued, it's worth comparing more than one lender rather than accepting the first offer.

How do I apply for asset based lending?

Applying for asset based lending with Capitalise takes a few steps once you know which assets you want to use as security.

Pull together your filed or management accounts, recent trading history and details of the assets you want to use as security
Run a free eligibility check with Capitalise to see which lenders on our panel of 130+ are likely to consider your business
Speak to a dedicated Capitalise funding specialist, who will talk through which types of assets to include and how the facility could be structured
Compare offers on rate, advance rate and fees before accepting an offer.

Get started with asset based lending

If your business holds valuable invoices, stock, equipment or property, asset based lending could unlock more working capital than an unsecured loan or single asset facility. You can compare asset based lending providers from our panel of 130+ UK lenders, with support from a dedicated funding specialist throughout. Apply today to get started.

What is asset based lending? A guide for UK businesses