ABL – Asset Based Lending & Finance

Are you planning to expand your business? If so you should be ready to invest in assets that can help accommodate the projected increase in output. Getting a business loan is the usual course of action in financing your cost of expansion. If borrowing is your preferred option, you may want to consider Asset Based Lending or ABL.

An ABL combines a business loan with invoice financing. For example, you can cover an unsecured business loan with invoice discounting. As the term implies, the company uses assets as a form of security to cover the amount of the business loan. Accepted company assets include equipment, machinery, commercial property, inventory, and invoices.

man reading asset based lending article

With ABL, a business can maximize cash flow. It will be easier to recruit, plan investments, and manage large contracts.

What Are The Benefits of Asset-Based Lending?

In business, it is very important to manage your cash flow effectively. However, in most cases, your cash is tied up in your business assets such as equipment and inventory. By using ABL, you can still capitalize on the value of your cash by using the assets to fund a project, an expansion program, or to simply improve your cash position.

Big businesses; those with expensive machinery and equipment such as construction companies and enterprises that maintain a large inventory will greatly benefit from Asset-Based Lending. Instead of allowing your cash to remain tied up with your assets, use them to acquire the funds necessary to balance out your cash flow or to finance revenue-generating projects and programs.

Beneficiaries of ABL are the suppliers and vendors that offer generous payment terms of 60-90 days to clients and customers. Extended payment terms may make for good client relations but these prolonged payment schedules can seriously affect your cash flow. Debtor balance is an accepted asset in ABL. You can have the funds necessary to keep your business afloat or to finance new projects for the next 60-90 days.

two people reviewing business loan proposal

Benefits from ABL Finance

  • No need to maintain distinct finance facilities
  • More flexible option compared to overdrafts or loans
  • Maximize the value of your assets
  • The loan is covered by the value of the assets
  • You can avail of debtor protection which can act as a hedge versus bad debts
  • With ABL, you will have the liquidity to finance various projects and programs

Who Should Apply For Asset-Based Lending?

Business expansion requires additional funding. In order to support increased production output, you will have to invest in equipment and machinery. Sometimes business expansion programs are set aside because there are concerns on how these investments will affect cash flow. A good option to consider is Asset-Based Lending. Use your assets to acquire financing for your working capital and to support cash flow.

three women discussing business loans

What other situations would benefit from ABL?

  • Finance infrastructure requirements that are stipulated by a large contract
  • Business refinancing strategies
  • Plans to pursue mergers and acquisitions
  • MBOs (Management Buy- Outs) and MBIs (Management Buy- Ins)
  • Business expansion programs targeting international locations

How Much Can You Borrow With ABL?

In ABL, the loanable amount is typically higher than other forms of financing. What does this mean for you? It means there are fewer lenders available. Thus, lenders are more inclined to customize their approach to assessing the needs of your business.