Impact of Asset Based Lending in Financial Institution

Running head: IMPACT OF ASSET BASED LENDING IN FINANCIAL INSTITUTION
IMPACT OF ASSET BASED LENDING IN FINANCIAL INSTITUTION
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IMPACT OF ASSET BASED LENDING IN FINANCIAL INSTITUTION
Table of Contents
Response to question (1):...........................................................................................................2
Response to question (2):...........................................................................................................3
References:.................................................................................................................................5

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IMPACT OF ASSET BASED LENDING IN FINANCIAL INSTITUTION
Response to question (1):
The concept of asset-based lending means the process of providing credit to the
borrower against the property, inventory, any valuable equipment or account receivable
owned by him. This type of credit facility is provided to the business organisations when they
need fund at lower interest cost (Alan, Yasin, and Vishal Gaur 2018, 637-654). Since the loan
amount is secured by the asset, if the borrower defaults the loan amount, bank or the financial
institutions can recover it by selling the asset (Kinai et al 2017, p. 29).
The main purpose of this system of borrowing is to satisfy the demand of liquid cash
to maintain the activity of the business organisation. In other words, asset-based lending is a
method of lending facility where the less liquid business organisation need more fund and the
bank agrees to provide further assistance against the asset of the company (Suzuki et al 2016,
28-41 ). The terms and conditions of such security depend on the value of the asset kept as
security.
The main advantage of asset-based lending is to increase the performance of the
business by securing the internal capital of the business and increasing the inventory and
amount of receivables and the fixed assets of the business organisation (Ronald et al 2015,
52-64). Further, in the case of a banking institution, the asset-based lending helps to enhance
the financial position. It can be defined with the help of the given case study. According to
the given situation the asset lending system has affected the financial position positively.
According to the financial statement of First National Corporation, it is seen that the net
interest income has increased from $78,699 (1983) to $105119 since this system of lending
provides sufficient amount of fund to the borrowers at a low rate of interest thus more
business organisations preferred to avail such facility. Thus, as a result, there is an increasing