What Is Asset-Based Lending?
Asset-based lending (ABL) is a type of business financing secured by specific business assets rather than overall creditworthiness. The loan amount is based on the “advance rate” applied to eligible collateral: typically 70–85% of eligible accounts receivable, 40–60% of finished goods inventory, and 75–85% of orderly liquidation value for equipment.
How ABL Revolving Lines Work
ABL revolving credit facilities fluctuate with your collateral base. As you sell and generate receivables, your borrowing availability increases. As receivables are collected and inventory sold, availability adjusts. This creates a self-liquidating structure where the facility naturally grows with your business growth.
ABL vs. Traditional Business Loans
| Factor | Asset-Based Lending | Cash Flow Lending |
|---|---|---|
| Primary Underwriting | Collateral quality and value | EBITDA and cash flow |
| DSCR Requirement | Less emphasis | 1.25+ typically required |
| Best For | Seasonal, cyclical, or rapid-growth businesses | Stable, profitable businesses |
| Minimum Size | Usually $250K+ | Any amount |
| Monitoring | Weekly/monthly borrowing base certificates | Quarterly covenants |
Industries That Use ABL Most
- Staffing agencies (large A/R balances)
- Wholesale and distribution (inventory financing)
- Manufacturing (equipment and inventory)
- Government contractors (reliable slow-pay receivables)
- Healthcare (large, predictable receivables)