Glossary detail

Asset Based Lending

Asset Based Lending ABL can be thought of as a hybrid form of business funding that sits between open account receivables finance and traditional banking solutions.

It provides structured working capital finance usually to corporate and large corporate scale businesses; it is often predicated on a mix of receivables finance combined with lending against other eligible assets.

Providers tend to be specialist banks and boutique finance houses.

For a corporate user, the benefits of ABL are significant; it generally can leverage the assets of a business more highly than a traditional bank facility, generating more cash for the user. It is also based on existing and future assets of the business rather than historic accounts. It tends to be less covenant restricted than traditional lending.

Assets that can be funded include open account receivables, inventory, plant and machinery, property (and in some cases intangibles like brand value).

Funding will be made available based on the net realisable value and ease of liquidation of the assets within each eligible class (so for example receivables will generate much more cash than the equivalent value of inventory, which in turn will generally generate more than will similar nominal value property).

Legal and Regulatory environments affect whether and to what degree ABL can be offered in any particular country. Ensuring that appropriate steps can be taken to structure the facility and ensure its security is therefore a critical task for the ABL provider.

That said, where it can be offered, ABL is a significant market solution. The USA is by far the largest global ABL market and funding there is in the same order of magnitude as the whole of the traditional open account receivables finance market.

The UK and other European countries with sympathetic legal environments then follow, although all are some way behind in scale.

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