Glossary · UK
What is Asset-Based Lending?
Business finance secured against specific assets, such as invoices, stock, plant and machinery or property, rather than the borrower's overall creditworthiness.
Full Definition
Asset-based lending (ABL) is a form of business finance where the amount a lender will advance is determined primarily by the value of specific assets the borrower pledges as security, rather than by an overall assessment of the company's general creditworthiness or cash flow as with a standard term loan. Common assets used include trade receivables (invoices owed by customers, often financed through invoice discounting or factoring), raw materials and finished stock, plant and machinery, and sometimes commercial property, with each asset class typically attracting a different advance rate reflecting how easily and reliably it could be recovered and sold if the borrower defaulted -- receivables might support an advance of 80-90% of their value, while stock or equipment usually supports a lower percentage. ABL is often used by businesses that are asset-rich but cash-flow constrained, including those going through rapid growth, restructuring, or a management buyout, since it can unlock more funding than a cash-flow-based facility alone, though it usually requires more ongoing reporting and monitoring -- lenders often carry out regular audits of stock and debtor books to check the assets are still there and correctly valued. Because it is secured, ABL is generally cheaper than unsecured finance for the same borrower, but it also means the specific pledged assets (rather than just the business as a whole) are at risk if the facility is not repaid.