Loan type
Asset-based lending: borrowing against what the business owns
A revolving facility sized by a formula against your receivables and inventory, not by your profitability. Powerful, and heavy on reporting.
At a glance
| What it is | A revolving line sized by a borrowing base formula |
|---|---|
| Sized on | A percentage of eligible receivables and inventory |
| Typical advance rates | Around 80% on eligible receivables, far less on inventory |
| Reporting | Monthly at minimum; weekly or daily on larger facilities |
| Field exams | Periodic audits of your collateral, usually at your cost |
| Covenants | Common, and tested regularly |
A good fit when
You have substantial receivables or inventory, you need more than cash flow lending will support, and you can produce reliable collateral reporting.
A poor fit when
You are small, service-based with few assets, or your bookkeeping cannot produce monthly aging and inventory reports.
How it differs from cash flow lending
A conventional loan asks what the business earns. ABL asks what the business owns that can be converted to cash, and lends a percentage of it.
That makes it available to businesses a cash flow lender would decline — the fast-growing, the thin-margin, the recently turned around — provided the assets are real and verifiable.
The borrowing base is the whole mechanism
Your limit is not fixed. It moves with a formula applied to your collateral, recalculated each reporting period.
- Eligible receivables only. Invoices over a certain age, from related parties, or from concentrated or disputed customers are typically excluded.
- Advance rates differ sharply — receivables advance far better than inventory, and raw materials far worse than finished goods.
- Concentration limits cap how much of the base one customer can represent.
- The base can shrink without warning. A large customer going past due can reduce your available credit in the same week you needed it.
What it costs beyond the rate
- Interest on the drawn balance, usually over prime.
- An unused line fee on what you have not drawn.
- Collateral monitoring or servicing fees, monthly.
- Field examination costs, periodic and generally payable by you.
- Audit and appraisal costs on inventory.
Total these before comparing to a term loan. A facility with an attractive rate and heavy monitoring fees can cost more than a plainer product.
What you need before approaching anyone
- A current accounts receivable aging report you trust.
- An inventory report with a defensible valuation method.
- Clean, current financial statements.
- A realistic view of customer concentration — it will be examined.
- Capacity to keep reporting monthly, forever. This is the part that defeats businesses that otherwise qualify.
Questions people actually ask
What is asset-based lending?
A revolving credit facility whose limit is set by a formula applied to your receivables and inventory rather than by your profitability. The limit recalculates as the collateral changes.
How is ABL different from invoice factoring?
Factoring sells individual invoices and is typically priced per invoice per period. ABL is a revolving line secured against the whole collateral pool, usually cheaper, and far heavier on reporting and covenants.
What advance rate will I get?
Receivables commonly advance around 80% of the eligible balance, with inventory substantially lower and varying by how readily it could be sold. Eligibility rules matter as much as the headline rate.