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"Commercial finance" (a term that is interchangeable with "asset-based lending"), is the business of making loans to businesses. Commercial finance companies, generally separate from banks, are also referred to as "asset-based lenders." Since all business lending is based on either the assets of the borrower or the income-producing potential of those assets, or both, the term "asset-based lending" might appear as meaningless, but in fact asset-based lenders use the term to distinguish themselves from traditional commercial banks, and to refer implicitly to the large and specialized back-office operations used to monitor the borrower's accounts receivable and inventory. Another difference is that banks, unlike commercial finance companies, take deposits and are subject to regulation by federal or state banking authorities. Commercial finance companies are often affiliated with, but but are not themselves, banks, and they do not take deposits. Commercial banks generally look for larger, straight revolving credit and term loans to larger, more stable companies. If the proposed loan size is too small for a bank, or if the credit of the borrower is not up to a bank's standards, the bank would usually refer the borrower to an asset-based lender.

Straight revolving credit loans made by banks differ from asset-based loans made by commercial finance companies, but these differences are subtle and can be quite confusing to the layman. Bank loans and asset-based loans are both revolving credit loans under which the borrower can borrow, repay and re-borrow principal up to the maximum amount of the revolving credit loan, and interest accrues on the balance outstanding from time to time. Both are secured by a lien on all of the borrower's assets, including accounts receivable and inventory. But in an asset-based loan the maximum outstanding principal amount the borrower can borrow is tied to those assets by a formula expressed as a percentage of the borrower's "eligible" accounts receivable and "eligible" inventory (e.g., 80% of eligible accounts and 50% of eligible finished goods inventory). Asset-based loan documents contain extensive, and often heavily negotiated, provisions regarding which accounts receivable and inventory are eligible and which are not. Asset-based lenders refer to the sum of the borrower's eligible accounts receivable and eligible inventory as the "borrowing base." The asset-based borrower has to report to the lender frequently and in great detail

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