What is asset based lending?

Asset based lending (ABL) is a business funding option that combines invoice finance and asset finance. Rather than relying on profitability or historic cash flow alone, the facility is supported by the value of both unpaid invoices and other eligible collateral owned by the company.

How does asset based lending work?

Invoice finance lets you borrow against your unpaid invoices. Instead of waiting 30, 60 or 90 days to be paid, a lender advances you a percentage of eligible invoices up front. When your customer pays the invoice, the lender is repaid (and you receive the remaining balance, minus fees).

Asset finance is borrowing secured against business resources such as stock/inventory, plant and machinery, equipment or property. The amount you can raise depends on the type of security, its condition, and the lender’s valuation.

ABL combines both into one facility. Typically, invoices provide the core funding, and additional capital is released by lending against other collateral on your balance sheet to create a larger overall limit than invoice finance on its own.

A lender will:

• Value the equipment, stock or property you are using
• Assess the quality and age of your debtor book (unpaid invoices)
• Understand the customer concentration risk (for example, reliance on one large customer)
• Find out how the business operates, and its future plans

This arrangement flexes with the company, unlocking more headroom as the firm grows and invoices increase in size or volume. Depending on the structure and individual requirements, the facility can also sit alongside other facilities, for example, a cash flow loan or schemes like the Growth Guarantee Scheme.

What can be used for asset based lending?

ABL can be secured against a range of collateral, depending on what your firm owns and how suitable they are.

This can include:

• Inventory/stock
• Plant and machinery
• Specialist equipment
• Property
• Certain intangible rights

Benefits of asset based lending

Higher borrowing capacity

Because this facility can use invoices and equipment as security, it can unlock more liquidity than invoice finance alone, releasing extra headroom for growth, investment, or strategic events.

Faster approval process

This is secured lending, so the decision is closely linked to the quality and value of the underlying collateral. For asset rich companies it can make credit discussions more straightforward than facilities based only on cash flow forecasts.

Flexible and scalable

Many facilities are designed to flex as your firm changes. If invoices grow, the borrowing base can expand too. This can be particularly useful for firms managing seasonal working patterns, long payment terms, or periods of rapid growth where cash flow lags behind sales.

Am I eligible for asset based lending?

Eligibility will vary by lender, but it is generally used by established businesses that can demonstrate a trading track record and can offer suitable collateral as security.

Lenders will assess the quality of your invoices and customers, any inventory or assets, and whether the company has the capability to support this type of facility.

Is asset based lending right for my business?

ABL is worth considering if you want finance that can scale with the value in your balance sheet, particularly where cash is tied up in invoices, stock, or equipment. Because the facility can unlock a larger pool of capital than invoice finance alone, it can be especially helpful for companies planning strategic change or succession planning, where there’s a need for flexibility, headroom and certainty of availability.

This type of lending can facilitate the following strategic events:

• Acquisitions – helping fund a purchase of a complementary firm
• Management buyouts (MBOs) – supporting ownership changes to the existing management team within the business. Management buy-ins (MBIs) – helping incoming management teams finance a transaction
• Succession planning and shareholder changes – providing liquidity to facilitate exits, retirements, or changes in ownership
• Employee Ownership Trust (EOT) – often part of a succession plan where a majority (over 50%) ownership is transferred into a trust for employees
• Refinancing or restructuring – replacing existing facilities with a structure that better reflects where value sits on the balance sheet

In practice, this type of facility tends to suit established companies with collateral that can be independently valued (for example, stock, machinery or property).

A specialist lender, like Close Brothers, can help you decide whether ABL is appropriate, or if an alternative, tailored, solution is a better fit.