Business owners have more than one option when it comes to getting 
a business loan. One of the more traditional routes is to obtain a loan based on company cash flow. Banks tend to favor these types of loans because they are based on actual revenue generation by the company. Another option is to pursue an asset-based loan. These loans typically are based on other factors besides cash flow and are not favored by traditional banks.
Focus
The primary difference between an asset-based loan and one that is based on cash-flow is in the focus of the lender. Chase Bank notes that a traditional bank loan is based first and foremost on the cash flow of a business, while the asset-based loan is based on company assets first and cash flow second. The difference is that lenders that provide asset-based loans focus primarily on the assets as a determining factor, rather than the cash flow itself. Cash flow is still considered in an asset-based loan, but it is secondary.
Collateral
The assets examined by a lender offering asset-based loans will vary somewhat, but lenders all tend to look at the same general types of collateral. The assets considered essential in an asset-based loan typically are any income expected from accounts receivable, real estate owned by the company, company equipment and inventory. The asset-based borrower agrees to make the bank the first security interest in these assets, in the event that the borrower defaults on loan payments. Cash-flow based loans don't require this collateral. Instead, they are based on the expected income of the company and its credit rating.
Suitability
Asset-based loans are not suitable for all businesses just as the cash-flow based loan is not possible for every business. In a cash-flow based loan, the company's credit rating plays a key role in determining how much or if a business can borrow in the first place. These loans are more suitable for businesses with high credit ratings and a large amount of documented cash flow. Asset-based loans are more suitable for borrowers who may have a lower cash flow or a poor credit rating. The value of the assets needs to be substantial enough for the bank or other lender to risk the loan.
Assessment
Advantages and disadvantages exist with both types of loans. Asset-based loans may be better for small businesses that simply do not have the available cash flow to account for the amount of money they need. However, the problem with an asset-based loan is that it tends to be more expensive than a cash-flow loan. Asset-based loans usually cost more in terms of fees and interest rates because the borrower has less than optimal credit or does not have the necessary cash flow to get a traditional loan with lower rates and fees.
