A growing number of smaller firms find that aggressive, hungry bankers are putting out new welcome mats. Over the past few years, dozens of major banks have dramatically expanded their "asset-based" lending.

Asset-based lenders are often lenders of last resort to companies that more conservative sources, such as the loan officer at your local bank, judge to be poor credit risk. They make secured loans based on a careful review of your assets' liquidation value. Accounts receivable, inventory, machinery, buildings, real estate, and even, in some cases, trademarks and patents can be used as collateral. Interest rates on asset-based loans generally float 3% to 5% over prime.

Here's the best part: In inflationary times, when the actual value of assets is often more than your balance sheet indicates, asset-based lenders may be able to lend you several times the amount your balance sheet shows as the stockholders' equity. They don't demand that you meet the same informal criteria applied by ordinary bank loan officers for unsecured loans.

Traditionally, special finance companies did most of America's asset-based lending, capturing a market that banks considered too risky. Monroe R. Lazere, president of Lazere Financial Corp. in New York, explains their role: "In many cases, unsecured borrowing doesn't work for small businesses. That's why they come to firms like ours. Thousands of good growth firms need money badly but cannot qualify for unsecured bank loans on the strength of their balance sheets alone. Or the business may be too new to interest an unsecured lender. And even those that meet the banks' criteria may be severely limited in the amount of money they can borrow. But because we look at prospective borrowers differently, we can offer major loans to the same applicants the banks turn away."

Nowadays, many finance companies have been acquired by bank holding companies. And they all face well-heeled competition from banks who have hired away top finance-company people to head their own asset-based lending subsidiaries. Stephen Diamond, for instance, was an executive with Walter E. Heller & Co., one of the nation's largest finance companies; he now heads Chase Manhattan Corp.'s Chase Commercial Corp. "Until recently, banks viewed themselves primarily as collectors of deposits who had to make very safe investments," says Diamond. "They left the riskier segment of the market to the finance companies.

"But this changed in the late '70s because banks started to see themselves not as collectors of deposits but as financial intermediaries who had to find all sorts of ways to make money lending money.

Most banks' asset-based finance subsidiaries are run separately from their networks of branches. So many small businesses rejected for ordinary bank financing never hear that the same bank might be able to meet their needs with an asset-based loan. Diamond admits that, in many cases, "you have to know to ask for it."

Lending policies vary among asset-based lenders. All look closely at the assets being pledged, but while traditional finance companies tend to lend solely on the strength of the assets themselves, the bank-owned companies are generally more conservative. They evaluate whether your cash flow will be sufficient to repay the loan, as well as whether your assets, if liquidated, would be sufficient to cover it.

Asset-based loans aren't for lemonade stands: Companies like Lazere Financial won't handle deals for less than $100,000, and even the smallest finance companies rarely look at a loan of less than $25,000.

If you receive an asset-based line of credit secured by your receivables, you must forward the checks directly to the lender as your customers pay their bills. Credit lines secured by receivables are usually reviewed annually; by securing loans with fixed assets you may be able to borrow for up to seven years. The maximum loan is usually about 80% of your assets' liquidation value.

Despite asset-based loans' high interest rates, many businessmen find them a vital source of funds. "In talks with banks, we quickly learned that our borrowing needs greatly exceeded the amount they were willing to lend us," says Joseph Kassel, president of Kassel Corp., an importer and manufacturer of wallpaper materials. "So we turned to asset-based lending. We've been using it for six years now and find it an excellent business tool. Our balance runs up to $1 million at a time."

Entrepreneur Douglas Stevens, a former Time Inc. executive, acquired a company with loans secured by the company's own assets -- a common technique. For years he had watched a small, thriving firm, H. George Caspari Inc., a greeting-card publisher. When he learned Caspari was up for sale, he jumped at the chance to buy it.

"But I couldn't get enough money from the banks," he says. "They focused almost exclusively on the debt-to-equity ratio, and I fell short there. Fortunately, the asset-based lenders are more interested in the quality of the assets. We pledged the receivables of Caspari to get the loan." The seller took notes payable over several years. Stevens borrowed from Lazere Financial each year to make the payments on the notes, repaying with the business's cash flow.

"The deal has worked out wonderfully," Stevens says. "I own the firm I wanted in spite of the banks' lack of cooperation. What's more, there is also a side benefit in working with the asset-based lenders. The discipline of the relationship forces you to get good documentation of your assets and to keep close tabs on receivables."

For a list of asset-based lenders across the nation, write the National Commercial Finance Conference Inc., One Penn Plaza, New York, NY 10001.