Why asset-based lending matters to a first-time founder
Asset-based lending (ABL) can fund day-to-day operations when a company has unpaid customer invoices, inventory or other assets the lender accepts, but cannot borrow enough without offering security. The lender usually advances only a percentage of those assets and monitors them. More qualifying assets may increase the amount available, while overdue invoices or ageing inventory can reduce it quickly.
Examples of asset-based lending
A wholesaler has £1 million of customer invoices that meet the lender’s rules. The lender will advance up to 80% but excludes overdue invoices and too much exposure to one customer, so the amount available is below £800,000. The company submits regular reports, and customer payments may flow through an account controlled under the loan terms.
Common misunderstanding
ABL is financing secured by assets, not an asset-based business valuation. The assets’ value does not guarantee that the full credit limit remains available. The lender may exclude assets, hold back reserves, limit exposure to one customer and impose financial promises called covenants. If customers delay payment or inventory becomes obsolete, borrowing capacity can fall when cash is already tight.
When to use it
Consider ABL when reliable customer invoices or inventory can support flexible funding for day-to-day operations. Compare the percentage advanced, exclusions, inspection fees, reporting, controls, covenants and the lender’s rights after a breach with other funding. Obtain legal and accounting advice before giving a lender rights over important business assets.