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Asset Based Lending

Asset Based Lending Explained

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ABC Finance » Invoice finance » Asset Based Lending
Gary Hemming Headshot

Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in ABL

Welcome to our comprehensive guide to asset-based lending. We’re here to help you navigate the world of loans, finance, and capital, specifically focusing on asset-based finance.

We’ll break down the jargon, explain how it all works, and show you how financial institutions like HSBC and Close Brothers can support your business.

What is Asset Based Lending?

Asset-based lending, often referred to as ABL, is a type of business loan that’s secured by company assets. These assets could include accounts receivable, inventory, equipment, or other property owned by the business. It’s a popular form of finance in the UK and beyond, particularly for businesses looking to grow, manage cash flow, or even support a venture capital or private equity deal.

How does Asset Based Funding work for Business?

The mechanics of ABL are relatively straightforward. Here’s a step-by-step breakdown:

  1. Assessment: The lender, which could be a bank or a private equity firm, assesses the value of your business’s assets. This could include everything from your invoices to your inventory.
  2. Loan Agreement: Based on this assessment, the lender agrees to provide a loan up to a certain percentage of the asset’s value. The specific rates and terms will depend on the lender and the quality of the assets.
  3. Access to Funds: Once the loan is approved, your business can access the funds as needed, similar to a line of credit.
  4. Repayment: As your business repays the loan, you can continue to borrow against the assets, up to the agreed limit.

Remember, the key is your assets. They act as a safety net for the lender, which can seize the assets if the loan isn’t repaid.

Who is Asset-Based Lending for?

ABL is a versatile form of finance that can support a wide range of businesses. It’s particularly popular among companies with strong sales but slow invoice payments, as it allows them to leverage these invoices to access immediate cash.

This can be a game-changer for businesses looking to grow, manage cash flow, or navigate short-term financial challenges.

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Advantages and Disadvantages

When it comes to asset based lending, there’s a lot to love. But like any form of finance, it’s not without its drawbacks. Let’s take a closer look at the pros and cons.

What are the benefits of Asset-Based Funding?

Asset based funding comes with a host of benefits that can make it an attractive option for businesses. Here are a few key advantages:

  1. Flexibility: Asset-based loans offer a high degree of flexibility. You can borrow as much or as little as you need, up to the value of your assets. This makes it a great option for businesses with fluctuating cash flow needs.
  2. Speed: Need cash fast? Asset based funding can be a quick way to secure funding. Once your assets are evaluated, you can often access funds within a matter of days.
  3. Growth Opportunities: With the right assets, you can secure the funding you need to grow your business, whether that’s investing in new equipment, hiring staff, or expanding into new markets.
  4. Credit History Less Important: Unlike some other forms of lending, asset-based loans are secured against your business’s assets, not your credit history. This can make it a viable option for businesses with less-than-perfect credit.

What are the disadvantages?

While asset-based lending can offer a lifeline to businesses, it’s not without its downsides. Here are a few things to consider:

  1. Risk of Losing Assets: If you can’t repay the loan, you risk losing your assets. This could have serious implications for your business, particularly if those assets are critical to your operations.
  2. Cost: Asset-based loans can be more expensive than other forms of finance, with higher interest rates and fees. It’s important to understand the full cost of the loan before you commit.
  3. Administration: Managing an asset-based loan can be more complex than other forms of finance. You’ll need to keep detailed records of your assets and may need to provide regular reports to the lender.

Is it a good idea?

Whether asset-based lending is a good idea depends on your business’s specific circumstances. If you have valuable assets and need flexible, quick access to cash, it could be a great option. However, it’s important to weigh up the risks and costs, and consider other forms of finance too.

What are the Key Considerations?

Before diving in, there are a few key considerations to keep in mind.

What are the key considerations when considering Asset-Based Lending?

When considering this type of funding, think about the value of your assets, the cost of the loan, and your ability to manage the loan. It’s also worth considering whether you have other, less risky options available.

What are the special considerations for Asset-Based Lending?

Every form of finance comes with its own set of considerations, and ABL is no different. You’ll need to think about the type and value of your assets, the terms of the loan, and the implications if you can’t repay.

Here’s some of the key considerations:

  1. Your Business’s Financial Health: Can your business afford to repay the loan? Do you have a solid plan for using the funds?
  2. The Value of Your Assets: Are your assets valuable enough to secure the amount you need? Remember, lenders will only lend up to a certain percentage of the asset’s value.
  3. The Terms of the Loan: What are the interest rates, fees, and repayment terms? Make sure you understand the full cost of the loan.
  4. Your Ability to Manage the Loan: Do you have the resources to manage the loan effectively? This includes keeping detailed records of your assets and providing regular reports to the lender.

Remember, asset-based lending is just one form of finance. It’s important to explore all your options and choose the one that’s right for your business.

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Detailed Analysis of ABL

Now that we’ve covered the basics of ABL, let’s delve a little deeper. We’ll compare it to factoring, provide an example, discuss product details, and even give you some tips on managing your invoices.

Asset-Based Lending vs. Factoring

Asset-based lending and factoring are both ways to leverage your business’s assets for funding, but they work in slightly different ways.

With asset-based lending, you’re securing a loan against your assets. You retain ownership of the assets and repay the loan over time. This can be a flexible option, allowing you to borrow as much or as little as you need, up to the value of your assets.

Factoring, on the other hand, involves selling your invoices to a factoring company. The factoring company gives you a percentage of the invoice value upfront, then collects the invoice payment from your customer. Once the invoice is paid, the factoring company gives you the remaining balance, minus their fees.

While factoring can provide quick access to cash, it can be more expensive than asset-based lending. Plus, you’re giving up control of your customer relationships, as the factoring company takes over the collection process.

Example of ABL for a UK Business

Let’s say you own a manufacturing business in the UK. You have a healthy order book, but your customers take 60 days to pay their invoices. This can put a strain on your cash flow, making it hard to pay suppliers or invest in growth.

With asset based lending, you could secure a loan against your unpaid invoices. This would give you immediate access to cash, allowing you to keep your business running smoothly while you wait for your customers to pay.

Product Details of Asset-Based Lending

Products can vary, but they typically include the following features:

  • Loan Amount: Based on a percentage of the value of your assets, such as invoices or inventory.
  • Interest Rate: Varies depending on the lender and your business’s creditworthiness.
  • Repayment Term: Flexible, with the option to repay as your assets are converted into cash.
  • Security: The loan is secured against your business’s assets.

How to Manage Your Invoices in Asset-Based Lending?

Managing your invoices effectively is crucial when using this funding. Here are a few tips:

  1. Keep Detailed Records: Track all your invoices, including the customer, amount, and due date.
  2. Follow Up Promptly: If a customer is late with a payment, follow up promptly to encourage them to pay.
  3. Communicate with Your Lender: Keep your lender informed about your invoices and any potential issues.

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Asset Based Lending

How to Apply for this Finance

Ready to apply? Here’s how to get started.

  1. Assess Your Assets: Determine the value of your assets and how much you could potentially borrow.
  2. Choose a Lender: Research lenders to find one that offers asset based finance with terms that suit your needs.
  3. Apply: Submit your application, along with any required documentation.

Alternatives to Asset-Based Lending

While asset-led funding can be a fantastic tool for businesses, it’s not the only game in town. There are plenty of other finance options out there that might be a better fit for your business. Let’s take a look at some of the alternatives.

  1. Term Loans: A traditional term loan from a bank or other lender could be a good option if you have a strong credit history and a clear plan for using the funds.
  2. Invoice Financing: Similar to ABL, invoice financing allows you to borrow against your unpaid invoices. However, instead of a line of credit, you receive an upfront payment for each invoice.
  3. Venture Capital: If you’re a high-growth company, you might be able to attract venture capital. This is a form of equity finance, where investors provide funding in exchange for a stake in your business.
  4. Private Equity: Similar to venture capital, private equity involves selling a stake in your business to private investors. This can be a good option for established businesses looking to grow.
  5. Personal Loans: If you’re a small business owner, you might be able to use a personal loan for business purposes. However, this can be risky, as you’ll be personally liable for the loan.
  6. Card Payments: Some businesses can access funding through their card payment processor. This is typically repaid as a percentage of your daily card sales.

Remember, the right finance option for your business will depend on your specific circumstances. It’s always a good idea to speak to a financial advisor or broker to understand all your options.


We’ve covered a lot of ground in this guide, but you might still have a few questions. Let’s tackle some of the most common queries about asset-based lending.

Asset based lending is available to a wide range of businesses, from small start-ups to large corporations. The key requirement is that you have assets that can be used as collateral for the loan. This could include invoices, inventory, equipment, or property.

The amount you can borrow depends on the value of your assets. Lenders typically lend a percentage of the asset’s value, which can vary depending on the type of asset and the lender’s policies.

Eligibility for ABL depends on a few factors, including the value of your assets, your business’s financial health, and your ability to manage the loan. If you’re unsure, it’s worth speaking to a lender or broker to discuss your options.

Asset-based financing works by leveraging your business’s assets to secure a loan. The lender assesses the value of your assets, then provides a loan up to a certain percentage of that value. You can then draw on this loan as needed, repaying the balance as your assets are converted into cash.