Asset Based Lending

Asset-Based Lending (ABL) is a senior secured revolving credit facility or term loan backed by a company's tangible balance sheet assets. Funding capacity is determined by the liquidation value of accounts receivable and inventory. Unlike traditional bank loans that rely on cash flow metrics and corporate EBITDA multiples, ABL underwrites the real-time value of your physical assets. Because the debt is secured by liquid collateral, ABL facilities generally offer a lower cost of capital than unsecured loans or cash flow debt.

Structural Comparison: ABL vs. Revenue-Based Financing (RBF)

Grouping ABL and Revenue-Based Financing together is a common mistake. They operate on completely different capital mechanics, risk profiles, and cost structures.

The Components of an Asset-Based Credit Facility

Your borrowing capacity is governed by a dynamic Borrowing Base, which functions as a living credit line. Instead of a fixed credit ceiling, your liquidity limit fluctuates via weekly or monthly Borrowing Base Certificates (BBCs). This mechanism ensures that capital availability tracks real-time asset generation, expanding automatically during seasonal build-ups and contracting safely during down-cycles.

Accounts Receivable (A/R) Advance Rates:

Lenders typically advance 80% to 90% of eligible invoices. Eligibility depends on customer concentration limits, invoice aging profiles (usually under 90 days), cross-aging rules, and historical dilution rates.

Inventory Valuation Mechanics:

Capital availability is modeled using Net Orderly Liquidation Value (NOLV) appraisals, which estimate the cash value realized during an orderly liquidation. Underwriting accounts for seasonal demand drops, obsolescence risk, and supply chain volatility.

Financial Covenants:

Traditional cash flow facilities often rely on EBITDA maintenance covenants. In contrast, ABL structures are primarily governed by borrowing base mechanics and may include a springing Fixed Charge Coverage Ratio (FCCR) test when availability falls below agreed thresholds.

Managing Cash Cycle Risk

An ABL line works efficiently as long as your underlying assets perform. Operational risk occurs if customer collections slow down or inventory turn rates drop. When asset velocity decreases, the dynamic borrowing base automatically contracts, reducing available credit. We analyse your cash conversion cycle upfront to ensure the facility remains reliable during periods of volatility.