Asset-Based Lending

As entrepreneurs and business leaders, we often find ourselves in need of funds to fuel expansion, manage operational challenges, or seize new opportunities. This is where asset-based lending steps onto the stage.

Welcome to our comprehensive exploration of asset-based lending, an innovative approach that empowers businesses to harness the value of their existing assets as a pathway to financing. This blog is your guide to understanding the ins and outs of asset-based lending.

What is Asset-Based Lending?

At its core, asset-based lending (ABL)  is a type of secured financing that allows businesses to leverage their assets to access working capital, also called equipment refinancing. This can be particularly advantageous for companies that may not have a substantial credit history or are experiencing temporary cash flow challenges. The key advantage of ABL is its flexibility. It adapts to your business’s changing financial needs and provides a lifeline during growth spurts or economic downturns.

How Does Asset-Based Lending Work?

The process of asset-based lending is relatively straightforward. Once you’ve identified a suitable asset-based lender, they will evaluate your business’s assets to determine their current market value and potential as collateral. This assessment helps lenders calculate the maximum amount they can extend as a loan. Unlike traditional loans with fixed terms and repayment schedules, ABL terms are often more fluid and responsive to your business’s performance.

Types of Assets Used as Collateral

Asset-based lending accommodates a wide variety of assets, making it suitable for diverse industries. Common assets used as collateral include:

  • Accounts Receivable: Outstanding invoices owed to your business, often called invoice finance.
  • Inventory: The value of your stock, which can be used as collateral to secure a loan.
  • Equipment and Machinery: Tangible assets like machinery, vehicles, or specialised equipment.
  • Real Estate: Property owned by your business can also be used for asset-based lending.
  • Intangible Assets: Intellectual property, patents, and copyrights can also be considered as collateral, but it is more difficult to secure finance on intangible items unless you own a significant brand or patent.

When and Why to Consider Asset-Based Lending

Asset-based lending isn’t just a one-size-fits-all solution; it shines in specific scenarios and industries. If your business is navigating these situations, it might be the right time to explore the benefits of ABL.

Situations Where Asset-Based Lending is Beneficial

  • Rapid Growth: As your business scales, you might need additional working capital to support increased demand, hire more staff, and invest in new equipment. ABL can provide the necessary funds without interrupting your growth trajectory.
  • Seasonal Fluctuations: Some industries experience significant seasonal variations in demand. ABL can help bridge the cash flow gap during slower periods, ensuring smooth operations year-round.
  • Turnaround and Restructuring: If your business is facing financial challenges or undergoing a restructuring phase, ABL can provide the liquidity required to stabilise operations and implement necessary changes.
  • Mergers and Acquisitions: When acquiring another company, ABL can offer the funds needed to complete the transaction and integrate the new business smoothly.
  • Contract Fulfillment: If your business secures large contracts with extended payment terms, ABL can provide the working capital needed to fulfil these contracts while awaiting payment.

Industries that Commonly use Asset Based Lending

  • Manufacturing and Distribution: Businesses in these sectors often have significant inventory and equipment, making them well-suited for asset-based lending.
  • Retail: Retailers can leverage their inventory to secure funding, particularly during peak shopping seasons.
  • Transportation and Logistics: Companies with fleets of vehicles or expensive transportation equipment can benefit from ABL to maintain and upgrade their assets.
  • Wholesale: Wholesalers dealing with high volumes of accounts receivable and inventory can use ABL to optimise their cash flow.
  • Service Industries: Even service-based businesses can use their contracts, accounts receivable, and other assets to secure funding.

Comparing Asset Based Lending to Traditional Financing

When evaluating financing options for your business, it’s important to understand the differences between asset-based lending (ABL) and traditional loans. While both serve as sources of capital, they cater to different needs and scenarios. Let’s explore how ABL stacks up against traditional financing.

Collateral vs. Creditworthiness

ABL: Focuses on the value of your assets as collateral. Your assets secure the loan, reducing the emphasis on your credit history.

Traditional Loans: Primarily rely on your creditworthiness and financial history. Assets might not be a central consideration.


ABL: Loan availability is linked to the value of your assets, enabling adaptable funding solutions.

Traditional Loans: Often have fixed loan amounts, terms, and repayment schedules, limiting flexibility.

Approval Process

ABL: Generally has a slower approval process due to the emphasis on collateral and assets, which can require valuation by third parties.

Traditional Loans: Generally a more straightforward process requiring ID, trading history and credit checks.

Business Life Cycle

ABL: Suited for businesses at various stages, including those with limited credit history, facing growth spurts, or dealing with financial challenges.

Traditional Loans: Suitable for start-ups right through to established businesses with strong credit profiles, trading and business credit rating will affect the rates on offer as cash loans present higher risk than buying fixed assets.

Tips for Success with Asset-Based Lending

Achieving success through asset-based lending (ABL) demands a well-informed approach and meticulous planning. To ensure a smooth and beneficial experience with ABL for your business, consider the following practical suggestions:

Clearly Define Your Funding Needs

Start by pinpointing the precise purpose for which you require ABL. Whether managing working capital effectively, seizing growth opportunities, or navigating the complexities of seasonal fluctuations, establishing a clear understanding of your funding needs is fundamental to a fruitful ABL arrangement.

Choose Your Lender Wisely

Opt for a lender well-versed in your specific industry. Their deep understanding enables accurate assessment of your assets’ value and tailored financing solutions to match your unique requirements. Prioritise lenders with a solid reputation and a history of transparent transactions. Building a partnership with a reputable lender establishes trust and reliability in your financial dealings.

Effective Management of Collateral

Implement meticulous record-keeping systems for the assets serving as collateral. Comprehensive documentation ensures transparency and streamlines the lending process. Prioritise regular maintenance and upkeep of your collateral assets. This showcases your commitment to preserving their value and abiding by the terms of the lending agreement.

Maintain Open Communication

Foster a culture of open communication with your lender. Transparent conversations in the face of challenges facilitate collaborative solutions and prevent potential misunderstandings. Uphold the accuracy and timeliness of the information you provide to your lender. Inaccurate data can lead to complications that affect the integrity of the lending arrangement.

Monitor Financial Health

Conduct periodic evaluations of your business’s financial health. Demonstrating robust financial management positively influences your relationship with the lender and the overall success of the ABL. Leverage the momentum of your business’s growth to explore opportunities for securing additional financing through ABL. Utilising the increased value of your assets can drive sustained expansion.

Embrace Proactive Risk Management

Develop comprehensive contingency plans to address potential challenges effectively. A proactive stance in preparing for uncertainties reflects your readiness to navigate unforeseen circumstances. Engage in rigorous analysis of diverse scenarios to gauge their potential impact on your ability to meet repayment obligations. Managing risks proactively safeguards your business’s financial stability.

Unlocking Your Business’s Potential with Asset-Based Lending

Asset-based lending isn’t just a funding solution; it’s a dynamic strategy that adapts to your business’s evolving needs. Whether you’re a startup seeking to conquer new horizons, an established enterprise aiming for expansion, or a business navigating seasonal shifts, ABL has the versatility to fuel your ambitions. This approach allows you to retain control over your assets while accessing the financial resources required for sustained progress.

For more financing options, get in touch with Portman today for expert advice on your business funding options. We can help you with asset finance and business loans to suit your needs. 


News & Articles FAQs

Can startups qualify for asset-based lending?

Yes, startups can indeed qualify for asset-based lending (ABL). While traditional lenders might be hesitant to extend credit to startups due to their limited credit history, ABL takes a different approach. Instead of solely relying on creditworthiness, ABL considers the value of your startup’s assets, such as inventory, accounts receivable, and equipment, as collateral. Startups that possess valuable assets can leverage them to secure the necessary working capital for growth and operations. This makes ABL an attractive financing option for startups looking to bridge the funding gap, manage cash flow, and seize opportunities without being hindered by their fledgling credit history.

Will my business lose control over assets used as collateral?

No, your business does not lose control over assets used as collateral in an asset-based lending (ABL) arrangement. ABL is structured to provide financing while using your assets as security—your assets act as collateral to back the loan. Once the loan is fully repaid, only then do you fully own the asset.
The lender’s interest is in securing the loan by having a claim to your assets if there’s a default. This means that as long as you meet the terms of the lending agreement, you continue to manage and utilise the collateral assets to drive your business forward. Your control over your assets remains intact, and you’re responsible for their maintenance and upkeep.

What happens if the value of my assets fluctuates?

Fluctuations in your assets’ value can impact an asset-based lending (ABL) arrangement. The value of your collateral assets serves as the basis for determining the amount of funding you can access. If the value of these assets experiences significant changes, it could affect the amount of available credit.
Lenders often build mechanisms to manage such fluctuations. Periodic assessments of the collateral’s value may be conducted to ensure it aligns with the terms of the loan. If the value declines, the lender might require additional collateral or adjust the terms of the lending agreement.
Conversely, if the value of your assets appreciates, you might have the opportunity to access more credit or negotiate better terms.