Asset-based lending system

Asset-based lending (ABL) is a way for established businesses to finance rapid growth or big contracts, using assets such as accounts receivable, inventory, equipment, machinery, or real estate as security for a business loan.

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What is asset-based lending?

Asset-based lending is a type of business finance where funding is secured by collateral. The amount the lender agrees to give is based on the value of specific assets, such as inventory, owned by businesses rather than traditional business financing, where lenders assess a company's balance sheets, profitability, and working capital. As an alternative option to funding, it is attractive to prospective applicants, especially those operating in volatile markets or with an unstable cash flow

How does asset-based lending work?

Many businesses need to take out loans, raise funds or obtain a line of credit to meet routine operations. However, since some may have difficulty proving a robust cash flow or demonstrating the viable cash assets required to cover their lending, the lender may offer instead to approve the loan using their physical assets as collateral. 

To providers, this accounts for a safer investment and positions the applicant attractively, as asset-based lending is considered less risky than unsecured lending (a loan that is not backed by support or assets). In addition, the more moveable the asset (such as a debtor book), the less risky the loan is considered, resulting in a lower interest rate demanded.

How your company is evaluated for asset-based lending differs from more familiar lending processes. Because asset-based loans are tied to the applicant's assets, they typically involve extensive reporting, credit checks and monitoring of the base assets. 

 As part of this process - monitored and regulated by the prudential regulation authority - your company will undergo field examinations by an independent third party to determine the level and quality of your financial and physical assets. Once this appraisal is complete and eligible collateral determined, the lender will seek to establish dialogue, such as covenant testing and quarterly financial reporting. 

What are the benefits?

Asset-based lending offers a powerful alternative finance option for large, small and micro-businesses seeking to benefit from the value of their assets and achieve greater liquidity. Companies that are asset-rich but have do not qualify for secured financing can potentially leverage these assets to obtain the working capital needed to pursue new growth opportunities. 


There are few restrictions on where and how you can spend the funding. Additionally, as you're borrowing against and keeping hold of equity, you can utilise other funding options such as invoice, mezzanine and alternative financing alongside your asset-based loan. 


Since your business only needs to maintain a minimum level of liquidity and your lending is backed by your business's assets, a lender's worries about a possible default are minimised. This allows you to possibly benefit from a flexible repayment structure, allowing for better, more concise planning. 


As inventory and receivables increase to meet demand, your business's borrowing base expands and immediately provides you with the needed capital to support immediate needs. Such advances can be hugely beneficial for companies that, for example, suffer from seasonality ebbs and flows or are experiencing rapid with and require a fast, secured injection of working capital.

Type of assets that can be used to secure funding include:

  • Accounts receivable/Debtor book, i.e. payments due to be made after the date of a sale or purchase transaction

  • Inventory, including raw materials/components, works-in-progress and finished goods 

  • Marketable securities, for-instance financial instruments, options, and hedge fund investments

  • Real estate, land and other non-moveable assets

  • Equipment (PP&E), such as machinery, office equipment, furniture, and vehicles

Am I eligible for asset-based lending

Applicants should be an established business with quantifiable assets and trading history. Lenders will not be able to provide finance without these.

Your balance sheet should reflect your assets of value. As discussed above, these could be anything from accounts receivable to real estate. Although lenders prefer liquid collateral like invoices and other marketable securities, finance can still be obtained using physical assets such as real estate or machinery and equipment. 

Suppose you're planning on using stock or inventory as security for lending. You'll need to prove that there is a demand for the item since most lenders will only consider such assets if the applicant can demonstrate their value.

The terms and conditions of an asset-based loan depend hugely on the value and type of the assets offered by the business. Interest rates charged may vary widely, depending on businesses' credit history, cash flow, and trading length.


With an asset-based loan, businesses can leverage their balance sheet (without capitalising on equity) by using company assets as collateral for a loan. You can use anything from your debtor book to accounts receivable, office equipment and real estate to secure funding. 

At Funding Options, we work with a number of lenders and other financial services across the business finance market. If you’re looking for asset-based lending or a different kind of finance, we can help you find the right funding for your business.

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Asset-Based Lending

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