Asset-Based Lending
Asset-based lending, usually shortened to ABL, is borrowing against what your business already owns rather than against its profit history. Receivables, inventory, equipment and sometimes real estate are pledged as collateral, and the lender advances a percentage of their value.
It exists because plenty of businesses are asset-rich and cash-poor. A manufacturer with $3M in receivables and a warehouse full of stock is not short of value, it is short of liquidity. A bank looking only at cash flow may decline; an asset-based lender looking at the collateral often will not.
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How asset-based lending works
The lender assesses your assets and sets an advance rate against each. Those rates vary because the assets do not carry equal risk:
- Accounts receivable — typically 75% to 90% of eligible invoices. The strongest collateral, because it converts to cash on a known timetable.
- Inventory — typically 20% to 60%, depending on how easily it could be resold. Raw materials and finished goods are treated very differently.
- Equipment — usually based on forced liquidation value rather than book value, which is often a great deal lower than owners expect.
- Real estate — commonly up to 75% loan-to-value.
Those advance rates combine into a borrowing base, which is the ceiling on what you can draw. As your receivables and inventory grow, the borrowing base grows with them. That is the defining feature of ABL: the facility scales with the business rather than being fixed at the point of approval.
What it costs, and what it asks of you
ABL usually prices below unsecured options because the lender is protected by collateral. The trade is administrative. Expect to report your borrowing base regularly, often monthly, sometimes weekly. Expect field examinations, where the lender verifies the collateral is real and valued correctly. Some facilities include a lockbox arrangement where customer payments go to the lender first.
This is the honest catch. ABL is cheaper money in exchange for more scrutiny and more paperwork. Businesses that want a facility they can forget about tend to find it intrusive.
Who asset-based lending suits
- Businesses with substantial receivables from creditworthy commercial customers
- Companies carrying meaningful inventory or equipment on the balance sheet
- Businesses growing faster than their cash flow can fund
- Owners declined by a bank on cash flow grounds despite holding real assets
- Companies working through a turnaround, restructuring or ownership change
It suits distributors, manufacturers, staffing agencies, transportation and construction particularly well, because all four tie up cash in receivables and stock.
Where it is the wrong tool
ABL is a poor fit for service businesses with few hard assets, for early-stage companies without a receivables ledger, and for anyone who needs money this week — the collateral assessment takes time. It is also not the cheapest option if you genuinely qualify for a conventional bank facility on cash flow, so it is worth testing that first.
Asset-based lending compared with the alternatives
- Accounts receivable financing is narrower. It advances against invoices only, and can be simpler to set up if receivables are your only meaningful asset.
- A business line of credit is typically unsecured, faster to arrange and smaller. ABL is the option when you need more than a line of credit will stretch to.
- Equipment financing funds a specific asset purchase. ABL borrows against equipment you already own.
- A business term loan gives you a fixed sum on a fixed schedule. ABL flexes with your balance sheet instead.
Asset-based lenders on Levr
Several lenders in the Levr lender directory provide asset-based facilities, including Garrington Capital, Capitally, Pillar Capital and NFS Capital. Facility sizes across those lenders run from around $250,000 to $30 million.
Find asset-based lenders
Levr matches your business against 50+ lenders, including asset-based specialists, from a single application. See how the matching works or compare every business loan type.
Frequently asked questions
How much can I borrow with asset-based lending?
Your borrowing base determines it, not a headline number. As a rough guide, a business with $2M in eligible receivables and $1M in inventory might see a borrowing base somewhere around $1.5M to $2M, depending on customer quality and how saleable the inventory is.
Is asset-based lending only for struggling businesses?
No, and this is a common misconception. Plenty of profitable, growing businesses use ABL precisely because the facility grows with their receivables. It is used in turnarounds, but it is not a distress product.
How long does it take to arrange?
Longer than unsecured lending, because collateral has to be assessed. Two to six weeks is typical, and larger or more complex facilities take longer.
Will I need a personal guarantee?
Often, though it varies by lender and facility size. The collateral does much of the work, so guarantees tend to be lighter than on unsecured borrowing.