Asset-based loans (ABLs) provide larger small businesses and middle-market companies with flexible financing. The facilities can be secured by accounts receivable, inventory, machinery, and corporate real estate.
The emphasis on collateral gives us more flexibility. As a result, asset-based loans are easier to obtain and have fewer covenants than conventional financing.
Note: Companies looking to leverage only their accounts receivable should consider a ledgered line of credit.
How does asset-based financing work?
Asset-based loans can combine revolving lines and term loans in a single facility. Accounts receivable and inventory are financed as revolving lines. Machinery and other fixed assets are financed using term loans.
The facility uses a borrowing base to determine your company’s available financing. The borrowing base reflects the value and type of eligible collateral.
a) Accounts Receivable
Lines secured by A/R operate as revolving facilities. They allow you to withdraw up to 85% of eligible receivables at any time. The balance is repaid as customers pay their invoices.
b) Inventory
Lines secured by inventory also operate as revolving facilities. They allow you to withdraw around 50% of the inventory value. The balance is repaid once the inventory is sold and the end client pays their invoice.
c) Machinery and other assets
Machinery and other assets are financed using a term loan structure. The amount available depends on the asset type, marketability, and other factors.
You can learn more by reading “What is an Asset-Based Loan? How Does It Work?“
Simple qualification
Asset-based lending facilities have simpler qualification criteria than comparable bank solutions. Requirements include:
Typical uses
Asset-based lending is flexible and can address a number of financing needs. Common uses include:
Industries
We work with companies that provide products and services to businesses and government entities. Industries include: