Equipment, asset-based lending, and factoring: the lenders that reach your operating company

Every other lender in this section lends against real estate. These three lend against what a business owns and is owed: its equipment, its inventory, and its receivables. They matter to a real estate operator because most operators also run an operating business, and the lenders that reach the operating company’s assets reach further than the owner expects, sometimes into the same entity that holds the property. Equipment finance lets a young company buy what it needs against the thing it is buying. Asset-based lending advances cash against a moving pool of receivables and inventory under a lender’s constant watch. Factoring is not a loan at all but a sale of invoices at a discount. Each is built around a different asset, and each puts a lien or a claim on the business’s working assets that can collide with everything else in this pillar.

Equipment finance, asset-based lending, and factoring lend against a business’s assets, not its real estate. Their liens on the operating company’s working assets reach further than most owners expect.

Equipment finance: the asset secures itself

Equipment financing is the simplest credit a business can get, because the collateral is the thing being bought. A lender advances the cost of a machine, a vehicle, a piece of medical or restaurant equipment, and takes a security interest in it; or a lessor buys the equipment and leases it to the business, retaining ownership. The term is matched to the equipment’s useful life, the underwriting leans on the asset’s resale value, and a business with thin credit history can often qualify because the lender’s risk is bounded by something it can repossess and sell. The SBA programs also finance long-lived equipment. The trap is scope: an equipment lender may take a lien broader than the one piece of equipment, and a lease may carry end-of-term obligations, purchase options, and return conditions that cost more than the rent.

Asset-based lending: a line against a moving base

An asset-based loan, an ABL, is a revolving line of credit advanced against a borrowing base: a percentage of eligible receivables and a lower percentage of eligible inventory, recalculated continuously. The lender takes a lien on those working assets, monitors them closely, and adjusts what the business can draw as the base rises and falls. It is working capital for a business whose assets are its invoices and its stock, and it is more flexible than a term loan because it grows with sales. The cost is surveillance and control: field exams, frequent reporting, a lender that can shrink your availability the moment the receivables age or a customer fails. The lien is usually a blanket lien on all the business’s assets, filed against the entity in its state of organization, and that blanket claim is where the collision with the rest of the stack happens.

Factoring: selling the invoices, not borrowing against them

Factoring is different in kind. The business sells its receivables to a factor at a discount and gets cash immediately; the factor then collects from the customer. It is a sale, not a loan, so there is no interest in the ordinary sense, only the discount, which on an annualized basis can be steep. Recourse factoring puts the customer’s nonpayment back on the business; nonrecourse factoring shifts that credit risk to the factor at a higher discount. Factoring suits a business with strong customers and slow payment cycles that cannot wait sixty days for cash. It is also, structurally, the model that the merchant cash advance industry borrowed and distorted: a purchase of future receipts rather than a loan, which is the framing that lets an MCA escape usury limits. Legitimate factoring and the MCA are cousins, and the difference is the discount, the collection mechanics, and the clauses that travel with them.

Why a real estate owner should read this page

The seam is entity reach. An operator who holds real estate and runs a business often does both inside a structure meant to keep them separate, and this pillar’s entity pages assume that separation holds. An asset-based lender’s blanket lien on the operating company reaches everything that entity owns, so if the operating company also holds real estate, or holds the membership interests in the entity that does, the working-capital lender has a claim that reaches the property. Equipment leases and ABL covenants routinely restrict additional debt and liens on the borrower, which can block a real estate refinance the owner assumed was unrelated. And a factor’s collection from the business’s customers changes the cash that would have flowed to the owner and, through the owner, to the real estate. The lenders on this page do not lend on buildings. They lend on the company that may own one, and the structure that separates the two is only as good as the liens that respect it.

The tell that you are at the right lender

You are at the right lender when the need is genuinely working capital or equipment, when the assets that secure the credit are the business’s own, and when you have confirmed the lien and the covenants stop at the operating company and do not reach the real estate or the entity that holds it. You are at the wrong one when a blanket lien would encumber assets you meant to keep separate, when the covenants would trap a real estate financing you have planned, or when the product on offer is a merchant cash advance dressed as factoring. These lenders are ordinary, useful, and mostly honest. The thing to watch is not the rate but how far the lien reaches.