Asset Based Lending (ABL) & Secured Commercial Loans (2024)

FAQs

What type of loan is an ABL? ›

Asset-based lending (ABL) is a loan that uses assets as collateral to secure funding. Businesses with significant asset value are the most common candidates for asset-based loans.

Prime candidates for ABL are asset-rich companies that may have variations in cash flow but need significant capital to help them operate and grow.

What is Asset Based Lending? Asset based lending, frequently called “ABL”, is a type of loan that is secured by various types of collateral. Most commonly used by businesses, asset-based loans are typically secured by accounts receivable, inventory, equipment or real estate.

Also known as an asset-based loan. A type of loan transaction where the amount the lender agrees to lend at any point in time depends on the value of specific assets that the borrower owns at the time rather than the borrower's cash flows.

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Asset-based loans, like many cash flow loans, are often structured as revolving loans. In asset-based lending, the lender typically lends up to an agreed percentage of the value of the specific assets (called a borrowing base).

To qualify for an asset-based loan, you'll need to put up high-value collateral — ideally an asset with a low depreciation rate that can be quickly converted to cash. It's also helpful to have a good credit and financial history.

Asset-based lending commonly references the loan-to-value ratio. For example, a lender may state “the loan-to-value ratio for this asset-based loan is 80% of marketable securities.” It states that the lender would only be willing to provide a loan of up to 80% of the value of the marketable securities.

Risks of Asset Based Lending

If you put up an important revenue-producing asset as collateral, failing to pay back the loan could result in the loss of that critical asset. This is the greatest risk in this type of financing.

An asset-based loan or line of credit may be secured by inventory, accounts receivable, equipment, or other property owned by the borrower. The asset-based lending industry serves business, not consumers. It is also known as asset-based financing.

What is the interest rate for asset-based lending? ›

In general, asset-based loan rates range from 5.25% to 15%. The financing can be structured as an asset backed line of credit or an asset-based term loan.

Lenders typically offer financing depending on a discount factor rather than lending equal to 100% of the value of the collateral. The borrowing base is calculated by multiplying the worth of the collateral by this discount rate or advance rate.

ABL provides a much more flexible approach to financing a business's current operations and needs for future growth. In contrast to traditional bank lending, where the borrowing company's operations are evaluated and its future cash flow is projected, asset-based loans are based on the collateral put up for the loan.

ABL Focuses More on Asset Value, Less on Performance Ratios

In contrast to commercial loans that are based primarily on financial ratios heavily driven by company profit and loss, asset-based lending focuses on the value of a company's assets to establish lending availability.

Asset based lending (ABL) is a financing method in which a borrower can use its liquid assets as collateral (collective personal property, inventory, accounts receivable, etc.).

What Is an ABL Credit Facility? ABL literally means asset-based loan; thus, it is no surprise that the foundation of any ABL facility is the assets supporting the borrowing base.

The term federal savings and loan (S&L) refers to a financial institution that focuses on providing checking and savings accounts, loans, and residential mortgages to consumers. These institutions are also referred to as thrifts—credit unions and savings banks that are mutually owned by their customers.