What is an Asset-Based Loan?

At YieldStreet we talk a lot about how our investment opportunities are asset based or backed by collateral. But what does that really mean?

An asset-based loan is a business loan that is secured by some form of collateral, or something pledged as security for repayment of that loan. Collateral can be tangible like machinery, inventory, a property or a non-physical asset like accounts receivable, or the future proceeds from a legal settlement.

In either case, the collateral serves as a form of security that helps protect an investment, meaning that in a default situation the underlying asset would be sold to repay the loan’s principal. Having a loan backed by an asset is beneficial not only to a lender, but the borrower as well.

A borrower can obtain a loan based on the valuation of an asset, helping lower the interest that he or she pays to the lender because of that added security from the asset’s valuation. Let’s say you are considering investing in one of our real estate investment offerings. The collateral in this case is the physical real estate property or building.

If the borrower were to default or stop repaying the loan, YieldStreet would be able to take ownership of the building and then look for another buyer for the property. Having an asset fortify an investment is radically different from owning a stock, where your investment is not protected from any loss.

Investors who are looking to minimize their risk of principal loss can invest in an asset-based opportunity to provide extra protection for their portfolios in times of market volatility.

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