Asset-Based Lending (ABL)
Asset-based lending (ABL) is a financing product secured by specific business assets — typically accounts receivable, inventory, equipment, or real estate — providing access to capital at lower rates than unsecured MCA by leveraging collateral value rather than just cash flow.
Why This Matters
ABL bridges the gap between MCA's cash-flow-only model and traditional bank lending. Lenders evaluate the value and quality of pledged assets, then advance against those assets at defined ratios (e.g., 80% of A/R, 50% of inventory, 70% of equipment). Available capital scales with collateral; rates run 8-20% APR depending on asset quality and borrower credit. ABL serves growing B2B businesses with substantial receivables or inventory who outgrow MCA structure but don't fit traditional bank credit boxes. Asset-based revolving facilities can fund $1M-$50M+ for qualifying businesses.
Example
Wholesale distributor with $2M in trade receivables and $1.5M inventory secures $1.6M ABL facility. Borrowing base: 80% of A/R ($1.6M) + 50% of eligible inventory ($750K) = $2.35M maximum, capped at $1.6M facility size. Variable interest rate at Prime + 4%. Distributor draws as cash needs arise, repays as A/R collects.
Frequently Asked Questions
Frequently Asked Questions
What businesses qualify for ABL?
Typically B2B businesses with substantial qualifying assets — strong A/R aging (less than 90 days outstanding), inventory with verifiable resale value, or equipment with collateral worth. Annual revenue typically $5M+ for asset-based facilities; smaller businesses use factoring or MCA instead.
How does ABL compare to MCA for growing businesses?
ABL scales with business size — growing receivables and inventory expand borrowing capacity. MCA caps based on monthly revenue and short-term repayment capacity. Established businesses graduating from MCA often move to ABL as they accumulate balance sheet assets to leverage.