Asset-Based Lending: Funding Micro-Mobility

Ever wondered how all these micro-mobility businesses start their business?


Young companies don’t have credit rating tracking records to secure a traditional loan. Most times, they’re also maybe VC-backed and do not want to further dilute their equity.


Asset-based lending is a form of business financing that uses the borrower's assets as security for the loan. This type of loan can provide businesses with quick access to capital. That helps them expand their operations, purchase new equipment, or cover other expenses.



Imagine a micro-mobility startup based in the UK that provides electric scooter-sharing services. The company wants to expand its operations by purchasing a fleet of new electric scooters.


However, they do not have sufficient cash flow or a strong credit history to secure a traditional bank loan.


In this case, the micro-mobility company can turn to asset-based lending. They can use their existing fleet of electric scooters as collateral for a loan. The lender assesses the value of the scooters and offers a loan amount based on that value. Typically, a percentage of the appraised value.


The loan could cover a significant portion of the cost of purchasing new scooters.


By leveraging their assets, the micro-mobility company can secure the necessary financing to:

  • Acquire the new fleet
  • Expand their operations.

The lenders have the assurance that if the company fails to repay the loan, they can seize and sell the electric scooters to recover their investment.


Asset-based lending can also benefit other sectors. For instance, in the manufacturing industry, a company might use its inventory or machinery as collateral to obtain a loan for purchasing raw materials or upgrading equipment.


Similarly, in the retail sector, a retailer can leverage their inventory or real estate assets to secure financing for business growth or inventory replenishment.


By utilizing asset-based lending, companies in various sectors can access capital to support their growth, invest in new assets, manage cash flow, and seize business opportunities.


Even if they have a limited credit history or face challenges obtaining traditional loans based solely on their creditworthiness.

SPEs In Asset Based Lending


Special Purpose Entities (SPEs) play a crucial role in asset-based lending. An SPE is a legal entity created specifically for a particular purpose, typically to hold and manage specific assets or undertake a specific financial transaction.


In the context of asset-based lending, SPEs are used to facilitate the borrowing and lending process. It’s similar to a SPAC, in the sense that it’s a separate legal entity whose sole purpose is to ease legal/financial activities between two parties. But that’s where the similarities end.


Here's how SPEs work in asset-based lending:

  1. Creation: The lender / borrower establishes the SPE as a separate legal entity. It is typically structured as a limited liability company (LLC), limited partnership (LP), or a similar entity type.
  2. Asset Transfer: The borrower transfers specific assets, typically valuable collateral such as inventory, accounts receivable, equipment, or property, to the SPE. These assets act as collateral for the loan.
  3. Protection and Isolation: By transferring the assets to the SPE, they are legally separated from the borrower's other assets. This separation helps protect the assets from other claims or creditors of the borrower and provides security to the lender.
  4. Lending Agreement: The lender and borrower enter into a lending agreement, specifying the terms of the loan: the loan-to-value ratio, the interest rates, the repayment schedule, and any conditions or covenants.
  5. Collateral Monitoring: The lender monitors and assesses the value and condition of the assets held by the SPE periodically to ensure the collateral remains adequate and sufficient to cover the loan.
  6. Enforcement: In the event of default by the borrower, the lender has the right to take possession of and sell the assets held by the SPE to recover the outstanding loan amount.


Why Is It Beneficial?


By utilizing SPEs, asset-based lending provides benefits to both lenders and borrowers:

  • For lenders: SPEs offer increased security as the assets are held separately and can be easily seized and liquidated if the borrower defaults. This mitigates the risk associated with lending against the assets.
  • For borrowers: Asset-based lending through SPEs provides access to financing even if they have limited credit history or face challenges in obtaining traditional loans. It allows them to leverage their valuable assets to secure the funds needed for business growth or working capital.

It's important to note that the specific structuring and legal aspects of SPEs can vary based on jurisdiction and the specific requirements of the lending arrangement. Consulting with legal and financial professionals is advisable when establishing an SPE or engaging in asset-based lending.


Micro-Mobility Businesses Backed By Asset-Based Lending


Dott is a European-based electric scooter-sharing company that operates in several cities across Europe. They raised a considerable amount of funding and used asset-based lending or similar financing options to expand their fleet and operations. Check their case study with Fuse Capital.


In general, most micro-mobility businesses like e-scooters and bikes are required to use Asset-Based Lending. Generally after the seed stage. Tier is another good example.