SOLICITOR IN PRESTON

Asset Based Lending (ABL)

What is Asset Based Lending?

Leveraging the assets on a business’ balance sheet is a core part of the financing solutions covered by FBX Capital. Asset based lending (ABL) is a broad term referring to ways and means of borrowing cash which is backed and collateralised by the business’ assets.

Examples of assets that can be used as collateral include accounts receivable, inventory, equipment, machinery and commercial property At FBX, we have successfully completed transactions from rudimentary invoice finance facilities through structured transactions, as complex as cross-border syndicated borrowing base facilities.

SOME OF OUR LENDERS
Enquire now

When to use Asset Based Lending

Asset-Based Lending (ABL) is well-suited for a variety of business needs and situations:

  • Growing Companies: Ideal for businesses in need of financing to support expansion.
  • Companies with Strong Assets but Weak Cash Flow: Useful for firms with valuable assets and temporary cash flow issues.
  • Businesses with Seasonal Sales Patterns: Helps manage cash flow during seasonal business fluctuations.
  • Turnaround Situations: A viable option for companies undergoing restructuring.
  • Companies Unable to Secure Traditional Financing: Offers a solution for businesses that don't qualify for traditional loans.
  • Leveraged Buyouts and Acquisitions: Can finance acquisitions or buyouts by leveraging company assets.
  • Refinancing Existing Debt: Allows companies to refinance debt under better terms using assets as collateral.

Process and timeframe

Document Collection & Deal Sheet

Identify your target acquisition based on strategic objectives & engage them to ascertain if there is a fit.

Indicative offers

If there is a fit, any funding gap will need to be identified & a strategy put in place to fund it.

Analysis & decision

Once funding is feasible, terms must be negotiated with the vendor. Upon agreeing to a letter of intent, a period of 6 weeks to 6 months follows to finalise the deal.

Due diligence & credit process

Ensuring thorough vetting and alignment of interests with these partners will greatly enhance the efficiency and effectiveness of the due diligence process.

Credit backed offer & legals

Alongside the due diligence, the funding facility deal will be being set up & you will need this in place and ready to go for completion.

Completion

As the deal completes, the corks pop & the fun begins...

Need to know & FAQs

Need to know:
M&A transactions can be complex and completion rates from letter of intent are under 50%. Of those that do complete, not all of them are success stories. M&A can be an absolute game changer for businesses, but it needs deep consideration. As advisors we suggest that business owners and entrepreneurs consider many things before entering into any transaction:

How does asset-based lending differ from traditional lending?

The main difference lies in the collateral. Traditional loans often rely on the borrower's creditworthiness and financial history, while asset-based loans focus on the value of the underlying assets. This makes ABL a viable option for companies that may not qualify for traditional loans due to a lack of credit history or financial challenges.

What types of assets can be used as collateral?

Common types of collateral include:

  • Accounts Receivable: Money owed by customers for goods or services delivered.
  • Inventory: Finished goods, work-in-progress, and raw materials.
  • Equipment: Machinery, vehicles, and other equipment.
  • Real Estate: Commercial property owned by the business.

Who can benefit from asset-based lending?

ABL is particularly beneficial for:

  • Companies in need of working capital to support growth or seasonal demands.
  • Businesses undergoing a turnaround or restructuring.
  • Companies that may not qualify for traditional bank loans due to financial history or credit issues.
  • Businesses looking to finance acquisitions.

What are the advantages of asset-based lending?

  • Flexibility: The borrowing base can grow with your asset base, providing scalability.
  • Accessibility: Easier to obtain than unsecured loans for companies with strong assets but weaker financials.
  • Speed: The approval process can be faster than traditional loans, as the focus is on the collateral.

What are the disadvantages of asset-based lending?

  • Cost: ABL can be more expensive than traditional loans due to higher interest rates and fees.
  • Monitoring and Reporting: Borrowers may need to provide regular reports on asset values and allow periodic audits.
  • Risk of Losing Assets: If the loan cannot be repaid, the lender can seize the collateral assets.

How is the borrowing base calculated?

Lenders typically apply a discount to the value of the collateral assets to account for liquidation costs and market volatility. For example, accounts receivable might be advanced at 80-90% of their value, while inventory might be advanced at 50-70%.

What is the typical term for an asset-based loan?

The term can vary widely depending on the purpose of the loan and the nature of the collateral. Working capital lines of credit might be revolving with annual renewals, while loans secured by real estate might have terms of several years.

How does the repayment process work in asset-based lending?

The repayment terms for an asset-based loan depend on the type of loan and the agreement with the lender. Generally, there are two main types of asset-based loans: term loans and revolving lines of credit.

  • Term Loans: These loans have a set repayment schedule over a fixed term. Payments are usually made monthly and consist of both principal and interest. The term can vary based on the collateral and the loan's purpose but typically ranges from one to five years.

  • Revolving Lines of Credit: This type of asset-based lending is more flexible. Businesses can draw down, repay, and re-borrow funds up to a maximum credit limit, similar to a credit card but secured by the company's assets. Interest is typically charged only on the amount drawn, and there may be a requirement to periodically "clean up" the line by paying it down to zero or a specified level before borrowing again.

For both types of loans, the specific repayment terms, including the interest rate, fees, and loan covenants, are negotiated with the lender and detailed in the loan agreement. Asset-based lenders may also require regular financial reporting and asset monitoring to ensure the value of the collateral remains sufficient to cover the loan.

Understanding the repayment terms and how they align with your business's cash flow and financial planning is crucial before entering into an asset-based lending agreement.

Here to help - Get in touch with our team

FBX Capital Partners Limited is registered in England and Wales. No.13456241. Registered office at 238a Telegraph Road, Heswall, Wirral, England, CH60 0AL.
Copyright © FBX Capital Partners. 2025. All rights reserved.
cross linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram