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What's the Difference Between Pledged-asset Lending and Asset-based Lending?

Last Modified : Mar 19, 2024

Reviewed by: Bruce Sayer

Pledged-asset lending and asset-based lending are both financing methods that involve the use of assets to secure a loan, but they differ significantly in their structure, purpose, and the types of assets used as collateral. Understanding the differences between these two forms of lending is crucial for businesses and individuals considering their financing options.

Pledged-Asset Lending

Pledged-asset lending allows borrowers to obtain a loan, often called a Pledged-asset Line (PAL), by pledging personal or business assets as collateral without having to sell those assets. This type of lending is often used by individuals to secure home loans without liquidating investments or making a cash down payment. For businesses, it can provide access to capital while retaining ownership and control of the assets pledged. The pledged assets typically remain in the borrower’s possession but are legally committed to the lender if the borrower defaults on the loan. The types of assets pledged are usually highly liquid, such as stocks, bonds, or mutual funds.

Asset-Based Lending

Asset-based lending is more commonly used by businesses to obtain financing based on the value of specific assets, which often include accounts receivable, inventory, equipment, or real estate. This type of lending is particularly useful for companies that need working capital to manage cash flow, expand operations, or survive financial hardships. The loan amount is determined by a percentage of the value of the secured assets, which are closely monitored by the lender. In asset-based lending, the focus is on the financial strength and liquidity of the assets being pledged rather than the overall creditworthiness of the borrower.

Key Differences

  • Asset Types: Pledged-asset lending typically involves liquid financial assets, whereas asset-based lending involves a broader range of business assets, including receivables and inventory.
  • Purpose and Use: Pledged-asset lending is often personal or for specific purchases, like real estate, while asset-based lending is mainly for business operations and working capital.
  • Borrower Profile: Pledged-asset lending can be utilized by individuals and businesses, focusing on the value of specific liquid assets. Asset-based lending, on the other hand, is primarily geared towards businesses that can leverage their operational assets for funding.
  • Risk and Management: Both lending types involve risk to the borrower if unable to repay, but asset-based lending usually involves more direct control or monitoring of the collateral by the lender, reflecting its use of less liquid, operational assets.


In summary, while both pledged-asset and asset-based lending provide means to secure financing through assets, they cater to different needs and scenarios. Pledged-asset lending is typically used for obtaining loans against liquid assets without selling them, suitable for both individuals and businesses. Asset-based lending is more focused on providing working capital to businesses based on the value of their operational assets.


ABOUT eCapital

Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.

We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.

Kyle Wilson Headshot

SVP, Sales Director of Business Development for eCapital’s Commercial Finance Division

Kyle Wilson, CPA, CMA is the Senior Vice President, Sales Director of Business Development for the Commercial Finance Division at eCapital. Kyle is responsible for leading business development efforts throughout North America, supporting eCapital’s mission to empower companies by accelerating their access to capital. Kyle ensures the company’s highly skilled team of business development professionals are well-positioned to support market needs.

Kyle has more than 13 years of expertise in commercial financing. Kyle joined eCapital from Hitachi Capital Canada, where he held the position of Director, Business Development. Prior to that, he held business development management positions at Bibby Financial Services (now eCapital), i-Cubed Industry Innovators, BDC and Bank of Montreal. He is instrumental in supporting clients and partners financing requirements while driving our continued growth in the commercial lending space.

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