Capital solution

Asset-based lending for companies with meaningful collateral support.

ABL may fit companies with receivables, inventory, equipment, or other business assets that can support a working capital facility beyond pure cash-flow underwriting.

Asset-based lending (ABL) is a capital facility secured by business assets — typically accounts receivable, inventory, equipment, or real estate. The borrowing amount is determined by the value and quality of eligible collateral rather than solely by cash flow or credit score, making it accessible to companies with strong assets but complex financial profiles. Compare ABL to invoice factoring to understand which structure fits your receivables profile. See how a Midwest manufacturer used ABL to fund $4.8M in growth.

Good fit

Collateral-backed businesses

ABL may work for distributors, manufacturers, wholesalers, logistics firms, and other asset-heavy operating companies.

Tradeoff

Monitoring and reporting

Borrowing-base structures may require reporting, collateral review, field exams, or ongoing availability calculations.

Review

Asset quality drives availability

Advance rates and structure depend on eligible A/R, inventory quality, liens, valuation, and concentration risk.

The borrowing base

The facility size on the term sheet is not what you can draw.

An ABL facility is quoted as a limit, but what you can actually borrow on any given day is the borrowing base: eligible collateral multiplied by an advance rate, less reserves. Companies are routinely surprised that a $3M facility makes $1.6M available, and the reason is always in the eligibility rules rather than in the headline number.

Advance rates are the easy part and vary less than people expect. Receivables commonly advance in the region of 80 to 85 percent, finished-goods inventory closer to 50 percent of net orderly liquidation value, raw materials lower again, and equipment against appraised forced-liquidation value on a separate amortizing tranche. What moves availability is not the percentage. It is what gets struck out before the percentage is applied.

Illustrative borrowing base on a $6M receivables ledger and $2M of inventory
Step	Amount	Why
Gross accounts receivable	$6,000,000	The number on the aging report
Less invoices over 90 days	−$700,000	Aged receivables are almost universally ineligible
Less concentration above the cap	−$900,000	One customer above the single-obligor limit; the excess is struck out, not the whole balance
Less contra accounts	−$250,000	Customers who are also suppliers can net off, so the receivable is not fully collectible
Less foreign, government and intercompany	−$400,000	Harder to enforce, or excluded outright
Eligible receivables	$3,750,000	62 percent of gross, before any advance rate applies
Receivable availability at 85 percent	$3,187,500	The advance rate applies only to what survived
Inventory availability	$700,000	Finished goods only, against liquidation value rather than cost
Less dilution and rent reserves	−$300,000	Credits, rebates and short-pays, plus landlord access risk
Total availability	$3,587,500	Against $8M of book collateral

The figures are illustrative and every lender's eligibility schedule differs, but the shape holds: gross collateral of $8M supporting roughly $3.6M of availability. The gap between those two numbers is the entire negotiation. Advance rates get all the attention in a term sheet discussion and eligibility definitions decide the outcome.

Two lines in that table are worth understanding before you sign anything. Dilution measures the share of invoiced revenue that never converts to cash because of credits, rebates, returns and short-pays; a lender measures it historically and reserves against it, so a business with generous return policies quietly funds a smaller facility. Concentration caps exposure to any single customer, commonly somewhere between 15 and 25 percent of the ledger, and it strikes out only the excess above the cap rather than the whole relationship.

The trade

ABL is cheaper money with an operational price attached.

Asset-based facilities usually price well below factoring or revenue-based alternatives, because the lender is secured against a monitored collateral pool rather than betting on cash flow. That discount is real, and it is paid for in reporting rather than in interest.

Borrowing base certificates. Monthly at a minimum, weekly on larger or more volatile facilities. Somebody has to produce these accurately and on time, every time.
Field examinations. A third-party examiner tests your aging, verifies invoices against shipping documents and samples your collections, typically once or twice a year, usually at your cost.
Inventory appraisals. Where inventory is in the base, an independent net orderly liquidation value appraisal is normally required and periodically refreshed.
Cash dominion. Many facilities route collections through a lockbox controlled by the lender, applied against the facility daily. Some apply this only after a covenant trigger; others from day one. It changes how your treasury operates.
Ineligibility drift. Availability moves with your aging. A slow collections month reduces borrowing capacity at precisely the moment you need it, which is the structural risk of the product.

The honest qualifier for ABL is therefore not the size of your balance sheet. It is whether your finance function can produce accurate collateral reporting on a fixed cadence. Companies without that capacity are usually better served by a facility with lighter administration, even at a higher headline rate, because a covenant breach caused by late reporting is expensive in a way the rate difference is not.

Before you compare term sheets

Have the borrowing base worked out on your own numbers.

An aging report, an inventory summary and your dilution history are enough to model what a facility would actually make available, which is the number worth comparing between lenders rather than the advance rate.

518.520.4552

Direct line, weekdays. Reporting capacity is usually the real question.

Send the details instead

ABL or factoring

Same collateral, different relationship.

Both lend against receivables, which is why they are constantly compared, but they differ on the thing that usually matters most in practice: who owns the invoice and who talks to your customer.

Ownership. In factoring the invoice is typically sold. Under ABL it stays yours and is pledged as collateral.
Collections. A factor often collects directly from your customer. Under ABL you generally keep the customer relationship, subject to the lockbox arrangement.
Pricing. Factoring is priced per invoice as a discount fee; ABL is priced as interest on drawn funds plus unused-line and servicing fees. On a comparable book ABL is usually materially cheaper.
Threshold. Factoring works at small scale. ABL carries fixed diligence and monitoring costs that need a facility of meaningful size to justify, which is why smaller companies are often quoted factoring even when ABL would suit them better on paper.
Flexibility. ABL can pull inventory and equipment into the same facility. Factoring is receivables only.

The practical sequence for a growing company is often factoring first, then ABL once the ledger, the reporting and the collections history can support it. Our side-by-side comparison of factoring versus asset-based lending goes further into cost and documentation, and invoice factoring and A/R capital covers the receivables-only route. At the other boundary, ABL versus cash flow lending maps when earnings-based underwriting beats collateral-based — the comparison your bank is implicitly running when it prices your line.

Where the constraint is a confirmed order rather than an existing receivable, neither applies until the goods ship — that stage is purchase order financing.

Documentation

What we review for asset-based facilities.

A/R and A/P aging, inventory reports, and customer concentration.
Current lien search, lender payoff information, and capital stack review.
Financial statements and management discussion of margin and seasonality.
Collateral valuation or appraisal where appropriate.
Historical dilution — credits, rebates and short-pays as a share of invoiced revenue.
Who prepares the borrowing base certificate, and on what cadence they can commit to.

Evaluate whether assets can support a larger facility.

ABL is often a fit question, not just a product choice.

Request Consultation