Asset financing is a method of raising funds by using a company's existing assets — including machinery, equipment, vehicles, receivables, or inventory — as collateral for a loan or by selling those assets to a third party and leasing them back. The key distinction from balance sheet lending is that the financing is secured against specific identified assets rather than against the company's general creditworthiness. Common forms of asset financing include: equipment finance (loans secured against specific machinery or plant), invoice discounting and factoring (using trade receivables as collateral), inventory financing (using stock as security), and sale-and-leaseback transactions (selling an owned asset to a financier and immediately leasing it back for continued operational use). In India, asset financing is extensively used by SMEs, manufacturing companies, and infrastructure developers who have significant tangible asset bases but may not qualify for large unsecured credit facilities from banks. NBFCs specialising in asset financing — including equipment leasing companies and vehicle finance NBFCs — are a significant segment of India's credit market. For equity investors, high reliance on asset financing indicates that a company's growth is closely tied to its tangible asset base — making capital expenditure cycles and asset utilisation rates key drivers of financial performance and creditworthiness.
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