Asset-based lending (ABL) helps businesses borrow against receivables, inventory, real estate, and equipment. Learn how ABL works, who it’s right for, pros and cons, and where to find the best lenders.
Asset-based lending, otherwise known as “ABL,” is a type of business financing secured by assets your company already owns. Instead of approving you mainly based on credit score or cash flow, an ABL lender looks at the value and reliability of your collateral, then lets you borrow against it. ABL is often used as a flexible way to cover gaps in cash flow, fund growth, and keep operations moving without giving up ownership, like you would with investors.
The most common assets used in asset-based lending are accounts receivable (unpaid customer invoices), inventory, and equipment. In some cases, lenders may also consider real estate or other hard assets. Because the lender has collateral to fall back on, ABL can work well for businesses that need working capital but don’t quite have the cash flow to support a traditional business loan.
Asset-based lending sets your borrowing limit using a borrowing base, which is a calculation based on the assets your lender will accept and how much they’re willing to lend against each one. In plain terms, the lender looks at your collateral, then converts a portion of its value into funding you can access.
During the review process, the lender focuses on how collectible or sellable your assets are, not just what they’re worth. Clean, current invoices from reliable customers typically carry more borrowing power than old, disputed, or concentrated with a single customer. Inventory, real estate, and equipment are also valued with resale in mind, so items that are slow-moving, highly specialized, or difficult to liquidate usually support less funding.
ABL can take several forms depending on what you’re borrowing against and how you plan to use the funds. Some arrangements are revolving, meaning your available funds can adjust as your receivables or inventory change, while others are set up as fixed-term financing tied to a specific asset or amount.
Asset-based lending can take many forms. A variety of loan products are considered eligible, and some of the most common types include:
| Funding is based primarily on the eligible invoices you have outstanding | A revolving credit facility where you can draw funds on an as-needed basis | A credit facility tied to inventory value, often used by product-based businesses | A term loan or lease secured by machinery, vehicles, or other equipment | A lump-sum loan backed by assets, repaid on a fixed schedule |
Asset-based lending is often a good fit for small or medium-sized businesses with significant receivables or inventory, seasonal cash flow, fast growth, or limited access to traditional unsecured loans. It’s likely to benefit a wide range of businesses, but can be especially useful for industries such as retail, manufacturing, wholesalers, etc.
An ABL may be right for you if:
Say a business has $250,000 in unpaid customer invoices and applies for asset-based financing. If the lender advances 80% on eligible invoices, the business could access up to $200,000. If some invoices are too old or under dispute, they may be excluded, which reduces the amount available.
The gap between the invoice total and the borrowing amount is the lender’s cushion. It accounts for collection risk, potential write-offs, and the costs involved in recovering value if the loan is not repaid.
If you’re considering an asset-based loan, there are a few steps you should know about first. Consider the following:
Before applying for financing, consider what collateral you can offer. Prepare an up-to-date accounts receivable aging report, a customer list, inventory reports (if applicable), and an equipment schedule.
Define how you plan to use funds, whether it be for working capital, payroll, inventory purchases, refinancing, expansion, or a combination. This will allow you to narrow down potential financing options and applicable lenders more easily.
It’s important to check for existing liens before pledging collateral. If another lender already has a lien on your receivables, inventory, or equipment, you may need to refinance or negotiate lien priority to proceed.
Be sure to review all costs associated with financing, including rates and fees. You want to make sure you work with a lender that understands your budget and long-term financial goals, so it’s worth shopping around with a variety of providers to ensure you get the best deal.
Many lenders require collateral exams, appraisals, and legal documentation before closing. Try to have your documentation as prepared as possible before applying to help streamline the process.
It’s important to review the repayment terms outlined in your financing agreement. Know how much you’re paying and for how long, so there are no surprises later on.
Asset-based lending options can range from a wide variety of loan products and applicable lenders. You can typically find options from banks, credit unions, brokers, online lenders, or other fintech institutions.
Depending on your specific financing needs, you can start your search with some of my recommendations:
Live Oak Bank provides asset-based financing for companies seeking working capital backed by operating assets such as receivables and inventory. Depending on the deal, it may structure borrowing with advance rates as high as 90% on eligible accounts receivable, with inventory also considered at competitive levels.
This option is generally aimed at larger small businesses and lower middle-market companies. Live Oak notes a typical fit for businesses with revenue under $125 million, with ABL line sizes commonly ranging from $3 million to $35 million. It can also be a fit for situations where cash-flow lending is not as practical due to leverage, inconsistent coverage, or a need to unlock more availability from working capital.
Bank of America Business Capital offers asset-based lending for companies looking for financing solutions of $5 million or more. It’s positioned as a flexible option when you need a larger facility, are planning an acquisition, or are working through a turnaround or restructuring scenario.
Asset-based lending through Bank of America can be structured as either a revolving line of credit or a term loan, secured by business assets. Borrowing availability is primarily driven by collateral quality and value, with common collateral including accounts receivable, inventory, equipment, and real estate.
1West is an online loan marketplace that helps small- and mid-size businesses compare financing offers across multiple product types, including accounts receivable financing, which is often considered an asset-based financing option. It’s a solid pick if you want options beyond a single lender’s ABL program, since you can explore different structures like lines of credit, equipment financing, SBA loans, real estate financing, and unsecured working capital through one application. 1West also states it works with 50+ lending partners, maximizing your odds of approval.
For businesses focused on receivables-backed funding, 1West positions its accounts receivable financing as collateral-based and notes that funding can be available in roughly 24 to 72 hours after approval, depending on the product and partner lender.
Lendio is a loan broker that partners with over 75 lenders to offer a wide variety of financing options, including potential for ABL. With a single application, you can be matched with all of your applicable funding options and compare them all at once. Some loan types include lines of credit, term loans, equipment financing, accounts receivable financing, and more.
Using Lendio, you can get quick access to funding once you’re approved. Since it works with a variety of lenders, this can allow for flexible qualification requirements as well. The online application is simple and quick to fill out, and once submitted, you’ll review your offers with a dedicated funding specialist to pick the best option for your business financing needs.
| Can provide higher borrowing limits because funding is based on asset value | Collateral is at risk if you default, as the lender can seize pledged assets |
| Can scale with your business as receivables and inventory grow | UCC liens and covenants can restrict additional borrowing or asset sales |
| Can support growth needs like inventory purchases, payroll, or large orders | Fees can add up beyond interest |
Traditional loans rely more on profitability, cash flow, and credit. ABL relies more on collateral and is often paired with ongoing reporting and monitoring.
Costs may include interest, origination fees, collateral exam or audit fees, appraisal fees, and ongoing monitoring fees. When shopping around for a lender, work closely with them to understand all potential fees and costs associated with the process.
Timing varies by lender and the complexity of the type of financing you choose. Some transactions can move quickly, while larger or multi-asset facilities may take longer due to audits, appraisals, and legal steps.
Lauren McKinley is a financial professional with five years of experience in credit analysis, commercial loan administration, and banking operations. She has worked at regional lending institutions across the Northeast, evaluating risk, analyzing financials, and managing loan processes. Specializing in commercial real estate and small business financing, Lauren has helped diverse borrowers navigate financial solutions.
