Asset-based lending is when a real estate investor may obtain financing for a property based on the borrower’s assets.

Liquid assets in asset-based lending are assets that you can convert to cash in a relatively short period, such as cash or marketable securities. For example, an individual’s income, stocks, bonds, mutual funds, and cash on hand are examples of liquid assets.

However, asset-based lending does not commonly relate to liquid assets. Instead, the asset is commonly referred to as property. In summary, asset-based loans require some form of collateral, and real estate investors often use asset-based loans for fix and flip properties, distressed property renovations, or long-term rents. Asset-based loans, by definition, are nearly always for commercial reasons rather than typical homeownership.

Equity-Based Lending is Another Term for Asset-Based Lending

However, one significant advantage of asset-based financing is that it is far faster than dealing with banks and traditional loans. It also necessitates fewer stringent standards from banks. Therefore asset-based lending offers the advantage of speedier funding and approval. You can get an asset-based loan approval in a few days, if not a week.

An asset-based lender may be the best option when a person does not qualify for standard financing.


asset based lending

When is Asset-Based Financing Appropriate for a Real Estate Investor?

People who wish to invest in real estate but have terrible credit, or foreclosure, can use asset-based financing. In addition, if a person has had difficulty obtaining funding from a regular bank, asset-based lending may be the best solution. Lenders often examine the investment properties directly, and asset-based lending is popular among investors seeking quick finance.

The Advantages of Asset-Based Lending 

Asset-based lending has several advantages. The first is a quick approval time, which may assist a real estate investor in competing with other purchasers, particularly in competitive seller’s markets when demand outstrips supply. Other benefits include fewer rules and greater borrowing flexibility. Furthermore, asset-based financing offers mid and small-sized firms short-term cash flow.

  • Real estate investors with a poor credit score or history might benefit from asset-based lending. Typically, a lender will do a cash flow study on a property to determine its value as an asset. If the asset (property) is a long-term rental, the lender will look at the net cash flow.
  • Another significant benefit of an asset-based loan is that many sellers use it as cash when selling a cash-only property. Cash-only in real estate indicates the buyer may only pay in cash. Still, it is a word with broader connotations because the residence does not qualify for standard financing or a mortgage if it is cash-only. This typically signifies that the property is in such bad shape that a bank is unwilling to touch it.
  • Typically, not having enough cash is a significant obstacle to buying a cash-only property. Still, many sellers consider asset-based and hard money loans to be cash because they are not backed by standard finance. In some respects, asset-based loans are explicitly to repair a troubled property and flipping it into an attractive real estate investment, so many sellers agree to accept hard or asset-based loan money as cash.

To summarize, asset-based loans assist real estate investors in competing for and entering the market for a limited number of properties and real estate investments. In addition, they provide quick cash to investors that do not want to wait for the lengthy loan process time of regular bank funding.

The Disadvantages of Asset-Based Loans

Similarly, it is critical to discuss the drawbacks of asset-based financing. For several reasons, asset-based loans are more expensive. Asset-based loans have higher interest rates than traditional financing, and if a hard money loan is utilized for an asset-based loan, the borrower will be subject to interest rates ranging from 8 to 15%.

Furthermore, asset-based loans have shorter payback terms. As a result, the repayment of these loans is quicker than standard mortgage loans, usually with a 5 to 30 years loan term. However, the asset-based loan also has a lower Loan to Value (LTV) ratio than a standard loan, which requires the buyer to make a larger down payment on average.


credit qualifications asset loan

Loans Made By Private Lenders

Asset-based loans include hard money loans. Like other asset-based loans, they feature higher interest rates, lower LTV ratios, and shorter payback terms than traditional loans. In addition, hard money loans have the same advantages as other asset-based loans: 

  • They can be authorized swiftly and are more convenient than standard finance.
  • Hard money loans offer much less paperwork and assist customers in rebuilding their credit after going through the foreclosure process. Hard money loans, in particular, are a subset of asset-based loans that employ property as security. In a typical bank foreclosure, the bank must go through lengthy and costly legal processes.
  • On the other hand, a hard money loan is taken on by the hard money lender. Therefore, a hard money lender must determine if the property can repay the hard money loan.
  • After-repair value generally determines a hard money lender’s loan rates and terms. They frequently need at least 25–30% down payments for real estate, and in the case of a refinancing, the borrower must maintain 25–30% equity (the more the down payment, the greater the likelihood of approval).
  • Because hard money lenders do not base their loans on liquid assets; instead, they utilize the purchase property as the asset, which is not a liquid asset, resulting in higher interest rates.
  • An asset-based loan is highly flexible and not connected to a specific purpose, so the loan money can be utilized as needed. This implies that asset-based loans can be utilized for rentals for novice investors or fix and flips for experienced investors. Still, experienced investors have a distinct advantage because most asset-based lenders favor experienced investors.
  • It is a less traditional type of investment that also provides the investor with additional possibilities. The higher fees and shorter payback terms are justifiable since these loans are quick and flexible.

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Loan Management With Liquid Logics

Finding the right lenders to partner with on your real estate journey is critical. Asset-based lending is ideally suited for real estate investments rather than traditional homeownership. In addition, the more an investor employs asset-based lending, the stronger their relationship with individual investors becomes. Are you an investor looking to start your real estate journey? If so, you are in the right place. Liquid Logics provides a true cloud-based SaaS full-cycle lending software solution for the residential mortgage banking industry. To learn more about our offerings, contact us to see what you are missing out on for your business!