Asset finance is a specific term relating to personal and commercial finance transactions. In the personal situation, asset finance relates to an asset such as property or a car, that a person pledges as security for the repayment of a loan. In the commercial world, asset finance often involves either factoring or inventory-based lending. Factoring is a type of finance where the asset involved is a purchase order for goods or sometimes services. The good name and credit of the purchaser is important to a factoring arrangement, because the party providing the finance needs to be sure the goods will be paid for. In factoring, the factor pays the producer of goods the price of the contract they have with the buyer, less the finance cost, then is paid when the buyer pays the seller. Inventory-based finance is somewhat more simple. Here, the asset is a unit of the inventory of product the company has warehoused.
