Home – Business Finance Guides – Asset Finance – Asset Finance vs Asset-Based Lending – What is the Difference?
When it comes to funding a business, there really is no one-size-fits-all approach, and every business has different needs as well as faces different challenges.
As a result, two popular finance options that often get mixed up are Asset Finance and Asset-Based Lending (often shortened to ABL).
While they both use assets to secure the funding for you, they work in very different ways.
So let’s break it all down so you can see how these differ, and which one will be better suited for your individual circumstances
Then if you have any questions, our team is on hand to help you.
What Is Asset Finance?
Asset Finance Meaning: Asset Finance is a way to get new equipment or machinery without paying for it all upfront. Instead, here you will use a finance company to buy the asset (like a van, computer system, or piece of kit), and then you make monthly payments over an agreed period.
Think of it like a hire purchase or finance lease – where you are using the item while paying for it bit by bit.
It’s especially helpful for small businesses who need things to grow but don’t have a big lump sum lying around.
Asset financing is also brilliant when you want to use assets you do not yet own – like new equipment financing for a café that wants a coffee machine, or a printer buying new production tools to name just two for example.
Here you are essentially “borrowing the asset” over a lease term, with options to own it at the end depending on the type of agreement.
What Is Asset-Based Lending?
Asset-Based Lending Meaning: Asset-Based Lending, on the other hand, is about using your existing assets to get a business loan or line of credit. Here you are not actually buying anything new. You are instead just unlocking value from what you already own.
As a result, with this type of secured loan, lenders will tend to look at the value of the assets on your balance sheet before making a decision.
This could include for instance, your:
Accounts receivable (money you’re owed from customers)
Inventory or raw materials
Property or physical assets
Even intellectual property in some cases
They then give you a loan or flexible ABL facility based on the loan amount you qualify for.
So, if you have £200,000 in unpaid invoices, you could release a good chunk of that in cash, very quickly.
This type of asset-based finance tends to be a great financing solution for businesses with lots of financial assets, especially those in International trade, Supply chain finance, or Capital Markets for example.
Find out if Asset Finance is right for you
At Business Finance, we make asset finance simple and stress-free. No more worrying about finding the right ideal — we do all the hard work for you. Our team is here to secure the best finance option that suits your business needs.
Want to know how much you could borrow and what your monthly repayments might be?
No problem, Get in touch with our friendly team today, and we’ll be happy to help.
How Does Asset-Based Lending Work?
Let us say your business has £100,000 in outstanding invoices. Instead of waiting 30, 60, or even 90 days to get paid, you can use Invoice discounting or factoring (a type of asset-based lending) to get that money upfront.
The lender here will then give you the cash now and take over the collection of your payments.
Then once your customer pays, the fees are deducted and you get the rest.
That’s asset-based financing in action.
Some lenders even include a credit facility or revolving lines of credit based on your accounts receivable or other assets you have available as well.
It is also fast, flexible, and works well for short-term needs or when a business like yours has tight cash flow.
When to Use Which?
Here’s a good rule of thumb:
You want to use Asset Finance when you want to purchase assets.
You then want to use Asset-Based Lending more when you want to release cash from assets you already have.
Example
You run a manufacturing firm that wants to expand your operations, and you need:
New machinery (costing £150,000)
Better cash flow to buy raw materials
Faster access to money stuck in unpaid invoices
As a result, you take out Asset Finance to get the machinery using a hire purchase deal with monthly payments over 5 years.
At the same time, you can use invoice discounting to get an ABL facility worth £75,000 to keep your production moving.
That is then the best of both worlds – as you are using asset-based finance to really help your business grow very effectively, for instance.
Key Differences
| Feature | Asset Finance | Asset-Based Lending |
|---|---|---|
| Main Use | To buy new assets | To unlock cash from existing assets |
| Type of Asset | New equipment or vehicles | Accounts receivable, inventory, property |
| Repayment | Monthly over an agreed term | Flexible – often tied to invoices or sales |
| Risk | Lower | Potentially higher if customer payments delay |
| Ownership | May own asset at end of agreement | No asset purchased – just borrowing |
| Best For | Buying kit without a lump sum | Improving cash flow quickly |
| Involves | Hire Purchase, Finance Lease, Operating Lease | Invoice Discounting, Lines of Credit, Term Loan |
| Regulated By | Financial Conduct Authority (FCA) | Financial Conduct Authority (FCA) |
Pros and Cons
| Type | Pros | Cons |
|---|---|---|
| Asset Finance |
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| Asset-Based Lending |
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Things For You to Consider
Asset-based lending can involve more checks on your credit history and financial products.
With asset finance, you know the cost upfront, and your purchase agreement is very clear.
Asset-based lending may be cheaper due to lower interest rates, but it can carry greater risk to you overall.
You also want to choose a lender or finance provider who understands your specific needs and industry very well, such as us.
Please do not confuse asset-based lending with unsecured loans – it always uses assets for security.
Asset Finance vs Asset-Based Lending – A Guide on How They Differ Overall
So, whether you need a Cash flow loans, or commercial funding, there is a whole world of financial services out there to help you.
Consequently, we now hope that by understanding the difference between Asset Finance and Asset-Based Lending, you are now more informed on which one is right for you.
For example, as you can see, they may sound similar, but they really do serve very different needs.
As a result, as a commercial finance broker and soon-to-be trusted partner, if you are unsure, please speak to one of our finance advisors to find out more.
For instance, we will listen to your goals, look at your balance sheet, and match you with the right financing solution for what you are after – whether that is for growth, or simply giving your team the assets they need to fulfil your contracts, we are here to help you.
Find out if Asset Finance is right for you
At Business Finance, we make asset finance simple and stress-free. No more worrying about finding the right ideal — we do all the hard work for you. Our team is here to secure the best finance option that suits your business needs.
If you liked this Comprehensive Guide to Asset Finance in the UK, and you now want to know how much you could borrow and what your monthly repayments might be?
No problem, get in touch with our friendly team today, and we’ll be happy to help.
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We work closely with some of the UK’s top asset finance lenders, making sure you’ve got the right options for your budget and goals.
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