USAA type of revolving loan where a lender lends an amount based on specific assets of the borrower rather than the borrower's cash flows. The lender lends up to a certain percentage of the value of the specific assets (called a basket of collateral). For example, the lender may agree to make a loan equal to 80% of the value of assets in the collateral basket. This loan amount varies depending on the value of assets in the collateral basket at the time the loan is requested, and assets may enter and leave the collateral basket from time to time. The loan is secured and collateral can include accounts receivable, inventory, machinery, real estate, intellectual property and other assets where value can be determined. In practice, asset-based lending is typically used for less creditworthy borrowers and is more expensive to borrowers.
Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010.