Asset-based lending

Almost all banks make loans with the borrower's collateral, including the combination of inventory and receivables. These assets are typically in the loan document language when you make any kind of business loan.

But not all banks make loans called "asset-based loans," which are typically collateralized almost exclusively by inventory and receivables. Asset-based loans are highly sophisticated transactions, expensive to set up and maintain, and usually involve transactions for more than a million dollars.

Most small businesses that want to get financing on their receivables are not large enough to qualify for a classic asset-based loan. Those that are will have to have audited financial statements, a management team that can work with the bank's transaction managers, and be prepared to live with constant scrutiny of their business practices and financial management.