Cash flow problems hit businesses when they least expect it. One day you’re planning expansion, the next you’re scrambling to cover payroll while waiting for invoices to clear. Asset-backed loans offer a lifeline, but they’re not right for everyone.

Cash flow, or the amount of money coming in and being spent at your business at a given time, is the no. 1 reason why small businesses fail, according to the U.S. Chamber of Commerce. There are many possible root causes of cash flow issues, including inventory management issues, poor budgeting, and lack of funding.  

However, what many business owners don’t realize is that they’re sitting on valuable collateral that could unlock immediate capital. When traditional bank loans fall through (which they often do), asset-backed financing becomes a game-changer for specific types of businesses.

If your business owns substantial physical assets but struggles with inconsistent revenue or limited credit history, asset-backed loans might be your best bet. But, which industries actually benefit the most?

Manufacturing Companies: The Sweet Spot for Asset-Based Financing

Manufacturing businesses are essentially the poster children for asset-backed loans, and for good reason. They typically own expensive machinery, equipment, and maintain substantial inventory levels.

Consider a small automotive parts manufacturer. They might have $500,000 worth of equipment and $200,000 in raw materials and finished goods. Traditional lenders often balk at seasonal revenue fluctuations or cyclical industry patterns. 

But asset-based lenders? They see collateral everywhere. According to the Corporate Finance Institute (CFI), an online training and education platform, “With completed inventory, the percentage is typically about 50% of the inventory’s value.”

The beauty here lies in the natural fit. Manufacturing companies need working capital to purchase raw materials, meet large orders, or upgrade equipment. Their assets directly support these business activities, creating a “self-reinforcing cycle” of growth and collateral value.

Construction and Contracting: Heavy Equipment as Financial Leverage

Contractors live in a world of delayed payments and project-based cash flow. A general contractor might complete a $100,000 job but wait 30 days or more for payment. Meanwhile, they need to pay subcontractors, purchase materials for the next project, and keep their equipment running.

So, construction companies benefit tremendously from asset-backed loans because their heavy equipment holds substantial value. That excavator sitting in the yard? It’s not just a tool. It’s collateral worth potentially tens of thousands of dollars.

Construction equipment can maintain strong resale value, making lenders more comfortable with higher loan-to-value ratios. Bulldozers, cranes, trucks, and specialized machinery all qualify as excellent collateral. Moreover, established contractors often have accounts receivable from reputable clients, which can serve as additional collateral.

In particular, seasonal contractors (think landscaping or roofing companies) particularly benefit from these arrangements. They need capital during slow seasons but have valuable equipment year-round. Asset-backed loans bridge that gap effectively.

Transportation and Logistics: Rolling Collateral

Trucking companies and logistics firms operate in a unique position. Their primary assets—vehicles—are literally their business. Transportation companies use asset-backed loans for fleet expansion, maintenance funding, and cash flow management during slow periods.

A mid-size trucking company might own twenty vehicles worth $2 million or more in total. Traditional lenders sometimes worry about the transportation industry’s volatility or regulatory challenges. Asset-backed lenders focus on the trucks themselves. 

What makes this particularly attractive for transportation companies is the dual benefit. They can use existing fleet value to secure capital and then use that capital to expand their fleet, essentially leveraging their way to growth. It’s a strategy that industry veterans suggest works well for companies with solid operational management but limited access to traditional credit.

Retail and Wholesale: Inventory as Investment

Retailers live and die by inventory management. Seasonal businesses especially face the challenge of purchasing large quantities of merchandise months before selling it. For instance, consider a sporting goods retailer preparing for hunting season. They might need $300,000 worth of equipment in July for sales that won’t peak until October.

Inventory-backed loans work particularly well for businesses with predictable seasonal patterns and established customer bases. The key factor here isn’t just the inventory value, but its liquidity. Sporting goods, electronics, and fashion merchandise typically qualify for better terms than highly specialized or perishable items.

Wholesale distributors often find even better opportunities. They might maintain millions of dollars in inventory across multiple product lines. Established wholesalers with diversified inventory can often secure favorable terms because their collateral represents proven market demand rather than speculative purchases.

Service Companies with Significant Equipment Investments

Not all service businesses qualify for asset-backed loans. You can’t exactly collateralize a consulting firm’s intellectual property, for instance. But, service companies with substantial equipment investments often find excellent opportunities.

Medical practices represent a prime example. Dental offices, imaging centers, and specialty medical practices often own hundreds of thousands of dollars worth of equipment. These businesses benefit from asset-backed loans because their equipment maintains strong value while generating consistent revenue.

Similarly, professional services like engineering firms or architectural practices might own expensive computer equipment, software licenses, and specialized tools worth significant amounts. Service businesses work best for asset-backed loans when their equipment directly generates revenue rather than simply supporting operations.

Restaurant and Food Service: Equipment-Heavy Operations

Restaurants operate with notoriously thin margins but often own substantial kitchen equipment, furniture, and fixtures. Established restaurants can leverage their equipment value for expansion, renovation, or cash flow management.

The challenge here lies in the specialized nature of commercial kitchen equipment. A $50,000 commercial oven has limited resale market compared to general manufacturing equipment. However, successful restaurants with proven track records can still secure reasonable terms, especially when combining equipment with other assets like accounts receivable.

Technology Companies: Hardware Over Software

Traditional tech companies, such as software developers, app creators, and digital agencies, rarely benefit from asset-backed loans. Their primary assets exist as intellectual property, which doesn’t translate well to physical collateral.

However, tech companies with substantial hardware investments tell a different story. Data centers, manufacturing tech companies, and hardware development firms often own millions of dollars in servers, manufacturing equipment, and testing gear. According to industry standards, these assets can support significant loan amounts, particularly when the company demonstrates consistent revenue from their technology investments.

The Bottom Line: Assets Plus Operations

The businesses that benefit most from asset-backed loans share common characteristics: They own substantial physical assets, generate revenue directly from those assets, and operate in industries where their collateral maintains a fairly consistent value.

But, it’s not just about having assets. It’s about having assets that support and enhance your business operations while maintaining value independent of your company’s performance. So, if you’re thinking of pursuing asset-based financing, first evaluate your asset portfolio and operational model.

The most successful applications come from businesses where assets and operations align naturally, as this creates genuine value for borrowers while providing lenders with multiple layers of security.