A guide to asset-based lending for businesses
Asset-based lending (ABL) is a way for established businesses to finance their growth by using their accounts receivable, inventory, equipment, machinery, property – or any other eligible business assets – as security against a business loan.
What is asset-based lending?
Asset-based lending is a type of business loan that is secured against an asset your business owns. Lenders use assets such as inventory, accounts receivable, property, plant and machinery to assess whether you’re eligible for business finance.
The loan amount you’re eligible for depends, among other things, on the value of the asset you’re offering as collateral.
This contrasts with other financing solutions, where lenders may focus more intently on your balance sheet, profitability and working capital. Asset-based lending could be an attractive alternative finance option for businesses operating in volatile markets, or companies experiencing unstable cash flow.
What are the benefits of asset-based lending?
Many businesses require business finance for working capital throughout their lifecycle. However, since many companies struggle to demonstrate positive cash flow, the lender may accept current and fixed assets as collateral instead.
Asset-based lending can be used by growing businesses or those who want to safeguard working capital in unpredictable markets. Here are some of the benefits:
Higher levels of funding than invoice finance alone
Faster release of working capital against both inventory and property
Flexible additional funding for plant and machinery
More control over cash flow finance
Can provide financial stability for SMEs and micro-businesses
A tailored solution built around the particular needs of the business
Types of assets that can be used to secure funding
When it comes to asset-backed lending, it’s the current and fixed assets of a business that the lender uses to evaluate loan eligibility. Here are the most common types of assets used for collateral:
Debtor book i.e. amount owed by customers
Inventory, including raw materials, work-in-progress and finished goods
Marketable securities, such as those on a balance sheet
Real estate, land and other immovable property
Equipment and machinery, such as office equipment, furniture, and vehicles
Who’s eligible for asset-based lending?
Asset-based finance lenders tend to lend to established businesses with quantifiable business assets (such as the ones listed above), and those with a trading history.
If you intend using inventory as security for lending, your business will need to be able to prove its market value. In the UK, this amounts to the lower cost and the estimated selling price (less any costs to complete and sell).
The terms and conditions of an asset-based loan depend on the value and type of the assets offered. Interest rates are dependent on your credit history, cash flow, and the number of years your business has been trading.
As this process is monitored and regulated by the regulation authority, an independent third party will audit your financial or physical assets.
Applying for asset-based lending
At Funding Options, we work with a number of lenders across the business finance market. If you’re looking for asset-based lending – or a different kind of finance altogether – we can help you find the right funding for your business needs. We’ll guide you through the application process and make sure you get the best deal.
Funding Options is a part of Tide. If you proceed, you’ll be redirected to Tide.
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A guide to asset-based lending for businesses
Asset-based lending (ABL) is a way for established businesses to finance their growth by using their accounts receivable, inventory, equipment, machinery, property – or any other eligible business assets – as security against a business loan.
Funding Options is a part of Tide. If you proceed, you’ll be redirected to Tide.
This quote won't affect your credit score
Get access to 120+ lenders
What is asset-based lending?
Asset-based lending is a type of business loan that is secured against an asset your business owns. Lenders use assets such as inventory, accounts receivable, property, plant and machinery to assess whether you’re eligible for business finance.
The loan amount you’re eligible for depends, among other things, on the value of the asset you’re offering as collateral.
This contrasts with other financing solutions, where lenders may focus more intently on your balance sheet, profitability and working capital. Asset-based lending could be an attractive alternative finance option for businesses operating in volatile markets, or companies experiencing unstable cash flow.
What are the benefits of asset-based lending?
Many businesses require business finance for working capital throughout their lifecycle. However, since many companies struggle to demonstrate positive cash flow, the lender may accept current and fixed assets as collateral instead.
Asset-based lending can be used by growing businesses or those who want to safeguard working capital in unpredictable markets. Here are some of the benefits:
Higher levels of funding than invoice finance alone
Faster release of working capital against both inventory and property
Flexible additional funding for plant and machinery
More control over cash flow finance
Can provide financial stability for SMEs and micro-businesses
A tailored solution built around the particular needs of the business
Types of assets that can be used to secure funding
When it comes to asset-backed lending, it’s the current and fixed assets of a business that the lender uses to evaluate loan eligibility. Here are the most common types of assets used for collateral:
Debtor book i.e. amount owed by customers
Inventory, including raw materials, work-in-progress and finished goods
Marketable securities, such as those on a balance sheet
Real estate, land and other immovable property
Equipment and machinery, such as office equipment, furniture, and vehicles
Who’s eligible for asset-based lending?
Asset-based finance lenders tend to lend to established businesses with quantifiable business assets (such as the ones listed above), and those with a trading history.
If you intend using inventory as security for lending, your business will need to be able to prove its market value. In the UK, this amounts to the lower cost and the estimated selling price (less any costs to complete and sell).
The terms and conditions of an asset-based loan depend on the value and type of the assets offered. Interest rates are dependent on your credit history, cash flow, and the number of years your business has been trading.
As this process is monitored and regulated by the regulation authority, an independent third party will audit your financial or physical assets.
Applying for asset-based lending
At Funding Options, we work with a number of lenders across the business finance market. If you’re looking for asset-based lending – or a different kind of finance altogether – we can help you find the right funding for your business needs. We’ll guide you through the application process and make sure you get the best deal.