do not have the credit ratings, track record, or patience to pursue more traditional capital sources. Features of asset-based loans Asset-based loans An asset-based business line of credit is usually designed for the same purpose as a normal business line of credit: to allow the company to bridge itself between the timing of cashflows of payments it receives and expenses. The primary timing issue involves what are known as accounts receivables—the delay between selling something to a customer and receiving payment for it. A non-asset-based line of credit will have a credit limit set on account opening by the accounts receivables size, to ensure that it is used for the correct purpose. An asset-based line of credit however, will generally have a revolving credit limit that fluctuates based on the actual accounts-receivable balances that the company has on an ongoing basis. This requires the lender to monitor and audit the company to evaluate the accounts receivable size, but also allows for larger limit lines of credits and can allow companies to borrow that which it normally would not be able. Generally, terms stipulating seizure of collateral in the event of default allow the lender to profitably collect the money owed to the company should the company default on its obligations. Factoring receivables Factoring of receivables is a subset of asset-based lending (which uses inventory or other assets as collateral). The lender mitigates its risk by controlling with whom the company does business to make sure that the company's customers can actually pay. Lines of credit may require that the company deposit all of its funds into a "blocked" account. The lender then approves any withdrawals from that account by the company and controls when the company pays down the line of credit balance. Pledging receivables Still another subset of a collateralized loan is a pledging of receivables and an assignment of receivables as collateral for the debt. In these instances, receivables are transferred to the lender when they are pledged as collateral. When the receivables are pledged as collateral, or assigned with the condition that the lender has recourse in the event the receivables are uncollectible, the receivables continue to be reported as the borrower's asset on the borrower's balance sheet and only a footnote is required to indicate these receivables are used as collateral for debt. The debt is reported as a liability on the borrower's balance sheet and