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Asset-Based Lending: A Primer for Borrowers and New Hires

August 17, 2023

By Mark Fagnani and Jason Schumacher


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Pictured, left to right: authors Mark Fagnani and Jason Schumacher

Asset-based lending offers many benefits to borrowers in need of capital, not the least of which is the partnership built between client and lender.

Asset-based lending is possibly the best type of financing for any sized company. But what is it? Let’s describe it here and then talk about why it works so well.

Asset-based lending (ABL) as the name implies, is a form of secured lending. The primary sources of collateral to secure the loan are Accounts Receivable (A/R), Inventory, Machinery and Equipment (M&E), Real Estate and Intellectual Property (IP), typically in that order of preference.

The lender will file UCC financing statements (a type of public notice) over the assets being pledged. That, coupled with a security agreement, will provide a priority lien that adds an additional form of repayment and level of protection for the loan.

Some asset-based lenders are bank-owned entities. Others are non-bank companies. Each has advantages and disadvantages. Bankowned ABL lenders are regulated and therefore may be subject to certain restrictions. On the other hand, they can offer a variety of bank services, including cash management and letters of credit. Non-bank ABL lenders are not regulated and may have a greater risk appetite and fewer layers of command in the decision-making chain. Prospective borrowers should meet with both types to determine what best suits the needs of your company.

Lenders conduct preliminary due diligence on a prospective borrower’s collateral to determine performance metrics – who are the customers, what is the customer concentration, what are their paying habits, what is the normal level of returns or allowances, how is the inventory maintained and accounted for, etc.?

Lenders may retain an appraisal firm to provide a reasonable estimate of the recovery values of the inventory under a variety of assumptions. The same would be true of M&E, Real Estate and/or IP. 

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About the Author

Mark Fagnani is senior managing director, PKF Clear Thinking. He has more than 30 years of hands-on experience working with large bank groups, private equity sponsors, turnarounds, workouts and insolvencies. Over the course of his lending career, Fagnani has worked with companies in a multitude of industries including steel and aluminum, coal mining, transportation, plastic injection and blow molding, beverage distribution, retail, lighting, and generic pharmaceuticals.

Fagnani was formerly a managing director and the chief credit officer of Wachovia Capital Finance, a unit of Wachovia Bank. After leaving Wachovia he helped form HVB Capital, a subsidiary of Hudson Valley Bank, and subsequently spearheaded their sale to EverBank resulting in EverBank Business Credit. More recently, Fagnani was recruited to help establish an asset-based lending business for Bank Leumi USA; serving as first senior vice president and group head of Leumi Business Credit.

Jason Schumacher is a first vice president of Valley National Business Capital, a division of Valley National Bank, with a focus on sustainably growing the credit portfolio. He began his career in commercial finance as an analyst for Keltic Financial Services in 2003 and holds a B.S. from VillanovaUniversity and an M.B.A. from Fordham University in finance.

Prior to Valley National Business Capital, Schumacher managed a portfolio of direct loan assets at Bank Leumi USA as a first vice president. He has also held previous roles at Ares Commercial Finance, where he managed a portfolio of direct loans, workouts, and liquidations; The Berkshire Bank, where he reported directly to the Office of the CEO on strategic matters and monitoring a broad range of assets; Laurus Capital Management, where he managed a portfolio of direct loan assets; and Morgan Stanley Businesscape, managing a portfolio of middle-market credits. He is a member of the Secured Finance Network and the Turnaround Management Association New York Chapters.

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