Top 3 Reasons Lenders Decline Asset Based Loans

Asset Loan Challenges


Asset based loans are not primarily based on credit, income, or other qualifying factors that a bank loan is based on. An asset-based loan is just that, a loan based on the asset being used as collateral for the loan. While some asset-based lenders may still consider credit or income as qualifying factors for making a loan, the majority of asset based lenders are looking primarily at the characteristics of the asset itself when qualifying a loan.


Basis of Asset Loans

Lenders who deal in asset based loans usually take a look at the following factors:

  • For example, are there comparables near the subject property that help to determine the value?
  • Is the subject property in good condition?
  • Is the property rented, if so, can the rental income be verified?


Reasons for Asset Based Loans Being Declined


  • The Neighborhood: Non-bank lenders aren’t subject to many of the same standards as FHA lenders. If the lender doesn’t like the neighborhood in which the property is located, the loan may be declined.
  • The Location: What if there are no solid comparables for value anywhere near the property? There are many location-related factors that may cause your loan to be declined.
  • Cash Reserves: Particularly on a rehab loan, a borrower who seems to be undercapitalized may also receive a decline. Lenders want to make sure a borrower can afford to carry the loan. On a rehab loan, a lender wants to make sure a borrower has a contingency fund. If it seems that a borrower is scraping by to make a loan work, this may be a decline.


All the time, I hear borrowers complaining that they are seeking an asset based loan, but that lenders are still requiring credit checks and income documentation. Just because a loan is primarily asset based, it does not mean that a lender is not going to require a basic loan application and credit report for the loan file. Even though a lending decision may be based primarily on the asset being used as collateral for the loan, a lender still needs basic information about the borrower who is signing on the loan.

The asset itself may qualify for the loan, but a lender still has to build a loan file, and that loan file contains information on the borrower for the loan. When applying for an asset-based loan, take note of the top 3 reasons a lender may decline the loan. Also, don’t assume an asset-based lender won’t require basic borrower information for the loan file, just because it’s an asset based loan. Call us today at 707-315-1119 or fill out our contact form and one of private money experts will be in touch promptly.

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