Asset-Based Lending

Like invoice finance, asset-based lending (ABL) will generally be provided against the debts owed to the client business (the debtor book) but will be supplemented with lending against other specific assets that belong to the client business. These often include 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 an availability of finance which the client business can draw down from. In simple terms it is a way of freeing up cash from various assets that are already owned by a business, releasing working capital or unlocking funding for investment and growth.  It is used for many different purposes, including supporting businesses that are growing quickly, re-structuring and even helping businesses that may have had challenges and need to evolve.

In addition to the debtor book, 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 this 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 their stock as they usually would. The level of finance fluctuates as stock levels move up and down, and 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 & machinery and property, will be treated as having a fixed value. Asset-based lenders will normally seek to take a Fixed Charge as security over these assets and, similar to stock, the level of finance provided would be based on a percentage of the value of the assets, and would vary in line with the value of the assets.