Asset-Based Lending (ABL) Guide

An asset-based loan (ABL) is a specialized type of commercial financing secured by a company’s balance sheet assets. Instead of relying strictly on historical cash flow or credit scores, ABL facilities are underwritten based on the liquidation value of a company’s collateral—most commonly accounts receivable (A/R), inventory, machinery, and commercial real estate. Heavy equipment and machinery are among the most liquid asset-based collateral classes. See our guide to Equipment Financing and Sale-Leaseback for a detailed look at equipment-specific structures

At Lender Tribune, we demystify commercial finance so you can leverage your company’s assets to maximize working capital and drive growth.

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Standard Advance Rates by Asset Class

In an asset-based loan, lenders do not give you 100% of the value of your assets. Instead, they apply an “advance rate” to protect themselves against market fluctuations and liquidation costs. Advance rates vary significantly based on the liquidity of the asset.

Collateral Type	Typical Advance Rate	Valuation Metric
Accounts Receivable (A/R)	80% to 90%	Eligible invoice value (typically under 90 days old)
Finished Inventory	50% to 65%	Net Orderly Liquidation Value (NOLV)
Raw Materials	20% to 40%	Net Orderly Liquidation Value (NOLV)
Heavy Equipment	75% to 85%	Forced Liquidation Value (FLV)
Commercial Real Estate	65% to 75%	Fair Market Value (FMV)

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How the Borrowing Base Works

The core of any ABL facility is the Borrowing Base. Because a business’s receivables and inventory fluctuate daily, the amount of capital you can access also fluctuates.

Companies with an ABL facility must submit a regular “Borrowing Base Certificate” (weekly or monthly) to the lender to calculate their available liquidity.

The Borrowing Base Formula

To determine your maximum available capital at any given time, lenders use the following calculation:

Borrowing Base = (Eligible A/R x A/R Advance Rate) + (Eligible Inventory x Inventory Advance Rate)

Note: “Eligible” collateral explicitly excludes certain assets, such as receivables older than 90 days, foreign accounts receivable, or obsolete inventory.

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Asset-Based Loans vs. Cash Flow Loans

When structuring corporate debt, it is vital to understand the difference between asset-based and cash flow-based lending.

Feature	Asset-Based Loan (ABL)	Cash Flow Loan
Primary Underwriting Focus	Collateral value and liquidity	Historical EBITDA and DSCR
Flexibility During Downturns	High (As long as assets remain strong)	Low (Covenant breaches occur quickly if revenue drops)
Reporting Requirements	Heavy (Frequent borrowing base certificates)	Moderate (Quarterly or annual financials)
Best Suited For	Turnarounds, high-growth phases, seasonal spikes	Stable companies with predictable, recurring revenue

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Who Benefits Most from Asset-Based Lending?

Asset-based loans are uniquely suited for B2B companies with asset-heavy balance sheets but uneven cash flow. Ideal candidates include:

• Manufacturers: To leverage raw materials, finished goods, and heavy machinery.
• Wholesale Distributors: To turn massive inventory stockpiles into liquid working capital.
• Staffing Agencies: To float payroll using their highly liquid accounts receivable.
• Retailers: To finance inventory build-ups ahead of peak holiday seasons.

Lender Tribune Pro-Tip: ABL facilities often come with hidden costs known as “field exam” and “monitoring” fees. Because the lender is relying entirely on the accuracy of your collateral reporting, they will send third-party auditors to your facility 1 to 4 times a year to verify inventory and inspect your accounting books. Always factor these audit costs into your true Cost of Capital.

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