Asset Based Lending

Asset Based Lending

Asset Based Lending Jonathan Poland

Asset-based lending (ABL) is a type of business financing in which a loan or line of credit is secured by the borrower’s assets. This means that the lender provides funding based on the value of specific assets pledged as collateral by the borrower. In the event the borrower defaults on the loan or fails to meet the repayment terms, the lender has the right to seize and sell the collateral assets to recover their losses.

The assets used as collateral in asset-based lending typically include:

  1. Accounts receivable: Outstanding invoices owed to the borrower by their customers can be used as collateral. The lender advances a percentage of the total receivable value, which varies depending on the creditworthiness of the borrower’s customers and the likelihood of collection.
  2. Inventory: Finished goods, raw materials, or work-in-progress inventory can be pledged as collateral. The advance rate depends on the liquidity, marketability, and perishability of the inventory.
  3. Machinery and equipment: Businesses can use their machinery, equipment, or other fixed assets as collateral. The loan amount is usually based on a percentage of the asset’s appraised value or fair market value.
  4. Real estate: Commercial or residential property owned by the borrower can also serve as collateral for asset-based loans. The loan amount is typically a percentage of the property’s appraised value.

Asset-based lending is often used by businesses in need of working capital, as it provides quick access to cash based on the value of their assets. This form of financing is particularly popular among businesses with high levels of inventory or accounts receivable, such as manufacturers, wholesalers, and retailers. It can be a flexible financing option, as the borrowing capacity can grow along with the business, provided the value of the collateral assets increases.

However, asset-based lending can also be more expensive than other forms of financing, as lenders may charge higher interest rates and fees to compensate for the increased risk associated with lending against collateral. Additionally, lenders may require regular monitoring of the collateral assets, which can be time-consuming and costly for the borrower.

Learn More
Risks of Artificial Intelligence Jonathan Poland

Risks of Artificial Intelligence

Artificial intelligence (AI) has often been depicted in science fiction as a potential threat to human life or well-being. In…

Turnaround Strategies Jonathan Poland

Turnaround Strategies

A turnaround strategy is a plan to rescue an organization, department, or team that is experiencing failure or underperforming. This…

Business Verbs Jonathan Poland

Business Verbs

Business verbs are action words that are commonly used in business communication to describe goals, plans, and achievements. These verbs…

Cost Advantage Jonathan Poland

Cost Advantage

A cost advantage refers to the ability of a company to produce a product or offer a service at a…

Examples of Consumer Goods Jonathan Poland

Examples of Consumer Goods

Consumer goods are physical products that are purchased by individuals for their own personal use. These goods are typically tangible,…

Data Security Jonathan Poland

Data Security

Data security is the practice of protecting data from unauthorized access, use, modification, destruction, or deletion. It is a key…

Brand Switching Jonathan Poland

Brand Switching

Brand switching refers to the act of a customer switching from a brand that they were previously loyal to, to…

Risk Tolerance Jonathan Poland

Risk Tolerance

A risk is the possibility of an adverse event occurring, while a trigger is the root cause of that event.…

Examples of Tact Jonathan Poland

Examples of Tact

Tact is the ability to sensitively and skillfully handle a situation or conversation so as to avoid giving offense. It…

Content Database

One Stop Shop Jonathan Poland

One Stop Shop

A one stop shop model is a business model in which a single company or organization offers a wide range…

What are Tactics? Jonathan Poland

What are Tactics?

Tactics are short-term, immediate strategies that are designed to respond to fast-changing realities and situations. They are focused on taking…

James Hardie Industries Jonathan Poland

James Hardie Industries

James Hardie Industries plc (JHX) is a leading global manufacturer and marketer of fiber cement building products, primarily used in…

Customer Service Principles Jonathan Poland

Customer Service Principles

Customer service principles are guidelines that an organization follows to shape its service strategy, policies, procedures, measurement, and culture. These…

Service Level Objective Jonathan Poland

Service Level Objective

An service level objective (SLO) is a standard used to measure the performance of a business or technology service. These…

Build-A-Bear Workshop Jonathan Poland

Build-A-Bear Workshop

Build-A-Bear Workshop, Inc. (BBW) is an American specialty retailer that provides a unique, interactive experience for customers to create personalized…

Consumer Services Jonathan Poland

Consumer Services

Consumer services are services that are provided to individual consumers, rather than to businesses or organizations. These services are typically…

Law of Supply and Demand Jonathan Poland

Law of Supply and Demand

The Law of Supply and Demand is one of the fundamental principles of economics. It states that the quantity of…

Maintainability Jonathan Poland

Maintainability

Maintainability refers to the relative ease and cost of maintaining an entity over its lifetime, including fixing, updating, extending, operating,…