An asset backed loan is a type of loan that is collateralized by specific assets, usually resulting in a cheaper rate for the borrower.
An asset-backed loan is a type of loan where the borrower uses certain assets as collateral in order to secure the loan.
An asset backed loan differs from a traditional loan in that traditional loans are secured by the borrower's creditworthiness, whereas an asset-backed loan is secured by the value of the assets put up as collateral.
Types of assets that can be used as collateral for an asset-backed loan include things like real estate, equity in a company, equipment, inventory, and accounts receivable, or any other asset a lender is willing to lend against.
The loan-to-value (LTV) ratio is determined by dividing the loan amount by the value of the assets put up as collateral. This ratio is used to determine the risk of the loan. Typically, this level is determined by the originator and / or lender for the loan.
Using an asset-backed loan can have its advantages and disadvantages. On one hand, it can provide access to funding that may not have been available through traditional means, and it can also allow for more flexible terms and repayment options. On the other hand, it does require the borrower to put up assets as collateral, which can pose a significant risk if the loan is not repaid.