Asset-Based Lending

Last Updated: Jun 6, 2019

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Asset-based lending is a term that is often broadly applied to loans that are secured by receivables and inventory and other assets. In addition to serving as collateral for an outstanding loan, the assets in an ABL structure will actually determine the amount of funding that can be generated under the loan at a particular point in time. This amount, also known as the borrowing base, will serve as a limiter against which loans can be advanced against.

However most experts in the field feel that this definition is too broad, and believe that the term should be reserved for transactions where there is also extremely close collateral monitoring, often accompanied by control of the cash collections on receivables.

Loans that fit these criteria show historical loss rates of less than 1%, because in the case of default if the collateral is valued correctly, secured under UCC 9 and monitored then the loan is usually able to be recovered either through liquidation or through a refinancing from another lender.

This brings an incredible advantage to the borrowers, because since the risk is so low, then the interest rates can be correspondingly low.