Definition
Asset Based Lending
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Asset based lending (ABL) is a type of lending program offered by most mainstream lenders where a loan, such as a mortgage, can be approved simply by documented proof of borrower assets.
This means that if a borrower is able to provide verified proof of a certain amount of assets, which relates to net-worth, then a lender can view it as justification to approve a loan or credit facility.
How much assets the borrower must show depends on the type of debt and the amount of credit requested.
For example, a lender might be willing to offer a 60% loan on a $1,000,000 property if the borrower can provide documentation as proof that he or she owns assets worth $500,000.
Some assets that might meet a lender’s criteria include:
- Stocks and shares
- Real property
- Cash or cash equivalents
- etc
This defeats the need to submit income documents as proof of income.
The advantage of such credit applications is that the borrower won’t have to collate all income documents of individuals or companies.
The paperwork is kept at a minimum.
Sometimes lenders of such types of loan might demand that a certain amount of funds be deposited into their fixed deposits for a period of time such as 6 months.
Because of the security provided by the borrower, lenders can often offer these types of borrower preferential rates on their credit facilities.
Asset-based lending is more common in the commercial space than residential space.
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