Asset Based Lending, also known as ABL is a more advanced form of invoice finance, which in addition to debtors, also takes into account the wider assets of the business, including stock, property and plant & machinery. Asset Based Lending provides a flexible facility that works in a similar way in Invoice Discounting, but leverages cash locked up in other assets as well as just the debtor book.
Typically, Asset Based Lending is more commonly used by mid-sized and larger companies as the additional monitoring required to make the facility work tends not to be cost effective for smaller businesses.
The Asset Based Lending company takes a Debenture (fixed and floating charge) over the debtor book and assets of the business, meaning that if the business fails, it can step into the businesses shoes and collect the money owed. With this security, it allows the finance company to lend more than would usually be the case with an overdraft as the risk to them is typically lower.
The main advantage of Asset Based Lending is the ability to release cash tied up not only in the debtor book, but also stock holding and also property, plant and machinery, but often without the more onerous debt servicing obligations that come with conventional lending facilities such as a term loan. An Asset Based Lending facility will fluctuate in line with your businesses requirements, i.e. when your stock holding and debtor book reach higher levels, you will typically have a higher availability of borrowing. When compared to the rigidity of a term loan facility, it provides significantly more flexibility.
An Asset Based Lending facility can provide immediate and crucial cashflow for your business. Most ABL facilities are provided on a Confidential basis, meaning that you do not have to disclose to your clients that you are using the facility.