What is Asset Financing?

There are generally two types of corporate financing: debt financing and equity financing. Asset financing is a third financing method that is different from the two. Asset financing refers to financing schemes driven by assets owned by the company. The assets referred to include current assets (such as accounts receivable, inventory, etc.) and fixed assets (such as plant and equipment, etc.). Asset financing allows SMEs to meet their short-term to medium- and long-term fundraising needs with their own assets. Asset financing enables enterprises to make full use of assets, and also enables assets and liabilities to complement each other and to meet related liquidity needs.

Asset financing

Common sense company

1. Short-term (up to one year) financing

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As a kind of credit activity, asset financing is based on two aspects. The first is the replacement value caused by the direct availability of assets; and the discounted value of future returns that can be obtained from the use of assets. The initial application of asset financing mainly depended on the replacement value of tangible assets. With the development of financial markets and technology, the source of value of asset financing gradually changed from the replacement value of tangible assets (called the first type of asset value) to the intangible. Expected discounted earnings value (referred to as the value of the second type of assets) is expanded. For example, a company owns the physical asset of a car. It could only obtain funds through the sale of cars. Now it can be financed based on the cash flow generated by car operations. With this change of thinking, various new financing technologies and methods have emerged, such as the "risk isolation" technology developed to ensure the independence and stability of assets that generate expected cash flows; to ensure the realization of expected cash flows And the development of "credit enhancement" technologies, these technologies finally became the standard practice of such financing, and promoted the further standardization of asset financing to asset securitization. Asset securitization, as an advanced form of asset financing, brought about the improvement of the entire financing technology. "Securitizing your dreams" has become a testament to this widely accepted approach. With the development of asset financing, many previously unsatisfactory financing needs have been met, and the value of previously idle assets has also been fully utilized, which is undoubtedly an improvement in efficiency for the entire society.