Asset-based lending (ABL) – What you need to know

Asset Based lending (ABL), generates finance against a company’s existing assets including stock, debtors, plant, machinery and property. The arranging of this can be in conjunction with debtor finance – factoring or invoice discounting. It is most suitable for businesses that supply goods and services on credit, business to business.

Asset Based Lending was once considered lending of last resort. But as times change, this previous reputation of it is largely misleading. People also think ABL is more expensive than a traditional overdraft but this is by no means always true. High street banks are reluctant to lend and when they do at much higher interest rates. So ABL has suddenly become a real alternative option for providing finance. Costs vary enormously, but generally the stronger the business, the more negotiating power you will have.

So what is ABL and what kind of businesses does it suit?

ABL is particularly good for start-up businesses, because as sales rise, the availability of finance rises with it. It is ideal for quickly-expanding, profitable businesses where they are struggling to finance new orders until they receive payment for items previously sold and invoiced. Sales-linked finance facilities, such as invoice discounting and factoring, have been proven to help businesses grow far faster than with a more restrictive, traditional overdraft facility.

But the reverse is also true, and many established and stable businesses are seeing their ABL facilities diminish due to falling sales.

Lenders generally like a spread of good quality debtors, so businesses with just a single or a few customers may struggle to get a facility. If debtors are well spread, quality becomes less of an issue.

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