Asset-Based Lending

Often associated with invoice finance, asset-based lending is available to businesses that have multiple asset types on their balance sheet.

Finance will generally be provided against the debtor book (as in the case of invoice finance) but supplemented with lending against other specific assets that belong to the client business, including stock, plant and machinery and other types of physical and intangible property, including some types of intellectual property.

The debtor book and other assets are used to generate a blended availability limit which the client business can draw down from.

Historically asset-based lending tended to be used by larger businesses with a range of assets but technology is now making it increasingly available for businesses of all sizes. In simple terms it is a way of freeing up cash and/or liquidity from various assets that are already owned by a business. Asset-based lending can be used for many different purposes, including assisting with supporting growing businesses, re-structuring and even helping businesses that have experienced stress.

Aside from the outstanding invoices owed to a business (invoice finance), the most common asset used in an asset-based lending facility is stock (sometimes referred to as inventory). A business that holds a significant value of stock at any moment in time could free up a percentage of the value of that stock to assist with cashflow, growth or investment.

The finance provider usually takes a floating charge over the stock as security, meaning the business remains free to buy and sell its stock as it usually would. The level of finance available will vary with stock levels. This is monitored through occasional valuations and regular reporting of stock levels.

Other assets which might be included in an asset-based lending facility, such as plant and machinery and property are generally more fixed in terms of their value. Asset-based lenders will seek to take a fixed charge as security over these assets and the level of finance available would be based on a percentage of the value of the assets.