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Q.What is asset-based lending and factoring?

A.The important difference between factoring and asset-based lending is ownership. In factoring, the factor buys and owns the receivables. In asset-based lending arrangements, the accounts receivable (inventory, equipment, property, plant, or other business assets) will be pledged to the lender as security/collateral for a loan; the borrower retains ownership and complete control of its receivables.

Asset-based lenders rely on the value of the underlying collateral to minimize the loan's credit risk. Asset-based loans also can include equipment loans and real estate mortgages.

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