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What's It Worth?

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An asset-based lender's emphasis on assets rather than cash flow makes a significant impact on the relationship between lender and borrower, according to Barnett.

The asset-based lender is taking a so-called security position in the underlying assets and views liquidation of them as a viable means of recovering the loan principal. In addition, because the asset-based lender is lending against assets, which can rapidly fluctuate in value, it monitors these assets more intensively. "It's not uncommon for asset-based lenders to look at a company's inventory or accounts receivable once a month, sometimes even more frequently," says Barnett. Conventional lenders making term loans, on the other hand, might review financial data just once a quarter and never look at inventory after the initial loan is made.

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This article was originally published in the March 1999 print edition of Entrepreneur with the headline: What's It Worth?.

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