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Access to capital is one of the most important factors in business growth. For many companies, particularly those with valuable assets but limited cash flow or credit history, traditional loans can be difficult to secure.
That’s where asset-based lending (ABL) comes in.
Asset-based lending allows businesses to borrow money using their existing assets as collateral. It’s a flexible financing solution that can support working capital, fund expansion, or help manage cash flow fluctuations, particularly for businesses with tangible value in inventory, equipment, or receivables.
This guide explores how asset-based lending works, what types of assets can be used, and the key advantages and considerations for businesses seeking to unlock funding through their balance sheet.
Asset-based lending (ABL) is a type of secured loan where a business uses its own assets as collateral to borrow funds. Unlike traditional bank loans, which rely heavily on credit ratings and cash flow history, ABL focuses on the value of your company’s assets.
These assets might include:
Accounts receivable (unpaid invoices)
Inventory or stock
Machinery and equipment
Real estate or land
Intellectual property or trademarks
The lender assesses these assets and advances a loan based on a percentage of their market value, known as the advance rate. For example, you might be able to borrow 70–90% of receivables or 50–80% of inventory value.
Because ABL loans are secured, they often provide faster access to funds than traditional lending, making them ideal for businesses seeking working capital to support daily operations or new opportunities.
An asset-based loan is structured around the assets you pledge as collateral. Once your application is approved, funds are released quickly, and repayment is made over a short-to-medium term, typically 1 to 3 years.
The process generally involves:
Asset Evaluation – The lender assesses your business assets and determines how much you can borrow based on their value and liquidity.
Loan Agreement – You agree to loan terms, including the advance rate, interest rate, and repayment schedule.
Monitoring – Throughout the loan term, the lender may require updates or appraisals to ensure the collateral retains its value.
Repayment or Renewal – The loan is repaid as agreed, or it may be renewed if your asset values remain strong and funding needs continue.
Because the loan is backed by tangible assets, lenders are often more willing to approve businesses that might not qualify for unsecured finance or traditional bank credit.
This is one of the most common forms of ABL. A business borrows against its outstanding invoices, immediately unlocking cash tied up in unpaid customer accounts.
It’s particularly useful for companies facing long payment cycles or seasonal cash flow dips.
Manufacturers, wholesalers, and retailers often use inventory as collateral. The lender values stock on hand and provides funding based on a percentage of that value, usually between 50–80%.
Businesses with valuable equipment, such as construction firms, manufacturers, or logistics providers, can use their machinery as collateral. The loan amount is tied to the equipment’s resale or liquidation value.
Commercial property and land are among the most secure forms of collateral. Real estate-backed ABL loans often feature lower interest rates and longer repayment terms because the underlying asset is stable and tangible.
Some lenders will accept intangible assets such as patents, software, or intellectual property, though these are more complex to value. They can still be a valuable option for technology or creative businesses with strong intangible portfolios.
Asset-based lending offers a number of strategic advantages, particularly for growing or asset-rich businesses:
Because the loan is secured by existing assets, approvals can be completed faster than traditional finance applications. This can be critical for managing cash flow, taking advantage of new opportunities, or covering short-term costs.
ABL financing grows with your business. As your receivables or inventory increase, your borrowing base can also expand, offering flexibility and scalability over time.
For companies with weaker credit scores or shorter trading histories, asset-based lending provides an alternative funding route. The emphasis is placed on asset strength rather than historical performance.
By converting non-liquid assets into cash, businesses can reinvest in operations, pay suppliers, and maintain growth momentum without disrupting ownership or equity.
In some cases, asset-based loans may not require personal guarantees, meaning directors’ personal assets remain protected.
While asset-based lending can be an efficient way to access capital, it does carry certain risks:
If the loan cannot be repaid, the lender has the right to seize and sell the pledged assets. For asset-heavy businesses, this could mean losing machinery, stock, or property that’s vital to operations.
Interest rates are generally higher than traditional secured loans, particularly when the underlying assets are harder to value or sell. Borrowers should also factor in valuation and monitoring costs.
Lenders often require ongoing audits or appraisals of pledged assets to ensure their value is maintained. This adds an administrative burden, particularly for receivables or inventory-based loans.
The amount borrowed will always be a fraction of the asset’s value. Businesses relying on lower-value or depreciating assets may not be able to raise sufficient funds through ABL alone.
Eligibility for an asset-based loan depends largely on the strength, liquidity, and documentation of your assets. To increase your chances of approval:
Prepare a detailed asset register – Include up-to-date valuations, ownership records, and condition reports.
Demonstrate stable operations and cash flow – Even though ABL focuses on assets, lenders still assess the business’s ability to service repayments.
Maintain accurate financial records – Clear, transparent bookkeeping builds confidence and can improve loan terms.
Work with experienced advisors – A specialist finance partner can help structure your application, ensuring you get the best possible deal for your needs.
Asset-based lending offers a practical and flexible way for businesses to release capital tied up in their balance sheets. Whether you’re unlocking value from unpaid invoices, stock, machinery, or real estate, ABL provides access to working capital when you need it most.
However, like all secured lending, it’s important to understand the risks, particularly around asset seizure and interest costs, and ensure the funding aligns with your long-term financial strategy.
At P10 Financial, we help businesses identify the right funding structures for their unique needs. Our team works closely with clients to secure tailored asset-based lending solutions that support growth, stability, and future investment.
Contact P10 Financial today for expert advice and bespoke funding solutions designed to help your business thrive.
