Asset-based financing (ABL) is a revolving credit facility secured by your business assets — primarily accounts receivable, but also inventory and equipment. As your receivables grow, your available credit grows. It is the preferred structure for manufacturers, distributors, and businesses with significant working capital tied up in assets.
Definition
Asset-based financing (also: asset-based lending, ABL): A revolving credit facility secured by business assets, mainly accounts receivable but also inventory and equipment. As your receivables grow, your available credit grows.
See all business financing definitions| Financing type | Business Financing |
|---|---|
| Typical amounts | Term loans $25K–$2M; equipment financing $10K–$500K |
| Decision time | As fast as 24 hours |
| Credit | All credit profiles considered; soft credit pull to start |
| Cost to apply | Zero cost to apply |
| Who we are | A business financing broker. We compare offers from our lender network; we are not a direct lender. |
In detail
The borrowing base is the maximum amount you can draw at any time, calculated as a percentage of eligible collateral. Lenders typically advance 70–85% of eligible accounts receivable (invoices under 90 days) and 50–65% of eligible inventory. As you generate new invoices and collect old ones, the available balance adjusts automatically.
In detail
Initial approval involves a field audit of your receivables and inventory — the lender verifies the quality and aging of your assets. Ongoing, you submit monthly borrowing base certificates reporting current asset balances. Some lenders also conduct periodic field audits (annually or semi-annually). This reporting requirement is the main operational difference from a standard line of credit.
In detail
Asset-based financing is most valuable for businesses with significant receivables or inventory that are growing faster than their unsecured credit allows. If your business has $500K in outstanding invoices and needs more than $250K in working capital, ABL is almost always more efficient than multiple unsecured facilities.
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Asset-based financing
ABL vs. line of credit
Business line of credit
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Most ABL lenders require at least $250K–$500K in annual billings and a minimum facility of $250K. Below that threshold, a standard business line of credit or invoice factoring is usually a better fit.
Invoice factoring sells your invoices to a third party at a discount — they collect from your customers. ABL uses invoices as collateral but you retain ownership and collect payment yourself. ABL is generally less expensive and preserves customer relationships better than factoring.
Yes, but lenders advance a lower percentage on inventory (50–65%) compared to receivables (70–85%) because inventory is less liquid. The type of inventory matters — finished goods are more valuable as collateral than raw materials or work-in-progress.
Written by lendfloCapital Editorial Team · Last updated
lendfloCapital is a business financing broker, not a lender. This page is general information, not financial, legal or tax advice. Rates, amounts and terms depend on the lender and your business.
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