What is asset financing?

In asset financing, the company uses its existing inventory, accounts receivable, or short-term investments to secure short-term financing. There are two ways to finance assets: The first involves companies using financing to secure the use of assets, including equipment, machinery, property, and other capital assets.

How do companies finance assets?

There are two ways to finance assets: The first involves companies using financing to secure the use of assets, including equipment, machinery, property, and other capital assets. A company will be entitled to full use of the asset over a set period of time and will make regular payments to the lender for the use of the asset.

Can a company use inventory assets to finance accounts receivable?

In most cases, the borrowing company using asset financing pledges its accounts receivable; however, the use of inventory assets in the borrowing process—known as warehouse financing —is not uncommon. Asset financing allows a company to get a loan by pledging balance sheet assets.