Is Asset Based Lending the Best Option for You?

Asset based lending (ABL), which refers to business loans secured by assets such as inventory, accounts receivable (usually invoices) and other balance-sheet assets, is rapidly growing and reached an all time high in the U.S.

With many banks still wary of investing in growing companies, ABL can help with short- and long-term capital needs. It offers companies strategic support with their plans for growth, plus mergers, acquisitions and general refinancing.

Rapidly growing companies looking for significant investment are beginning to turn toward ABL, as are those with a strong asset base. It also appeals to organizations that are managing transactions, such as a buy-out or where restructuring requires leverage in the business. M&A activity, management buyouts or buy-ins, as well as share buy backs, are also increasingly benefiting from ABL. [1]

Often, when a middle-market firm or one backed by Private Equity goes through a major restructure, its ability to generate income and maintain operating costs requires changes. For companies experiencing growth or other challenging situations, ABL can help provide greater access to working capital. In addition, debt amortization is not necessary for a significant element of the facility. This then reduces the overall debt service burden on the business. [2]

In the case of a management buyout, asset-based lenders are frequently willing to accept a mixture of assets as security. This means that the buyout team can tailor the funding arrangements to their own individual and business needs. For example, they may decide to secure a portion of the funding against accounts receivables and inventory with the balance of the loan against machinery and equipment.

Most companies will be able to access a larger amount of funding with ABL since the value of their asset base exceeds their history of cash flow performance.

ABL is often used by companies that are operating in volatile environments. This might include those trading in commodity markets where prices fluctuate or where seasonal variations require increased funding for certain seasons. Borrowers benefit from the fact that loans do not relate solely to cash flow. ABL financing can also be blended with junior debt (debt that is unsecured or has a lower priority in case of a default), to provide increased funding.

Account receivables are one of the most common elements of an ABL. These assets can be monetized to improve cash flows and lessen the burden of the receivables cycle. Upon developing a deeper knowledge of a company's business, an ABL lender leveraging receivables can create greater access to capital by including types of receivables that are unique to its operations.

Lenders are looking at a wider range of assets and a growing number of companies are now using intellectual property (IP) or even brands as security with a lender. This means that as well as companies with large stocks of capital equipment, those with more intangible assets can benefit from ABL. Here, as in other areas, it's advisable to approach a specialist lender or at least one with experience of this area who can assess the value of the asset accurately. [3]

Finally, ABL doesn't need to stand on its own. It can be paired with junior secured, second lien, mezzanine, term lending and stretch cash flow to further maximize access to capital. A company that already has these facilities with ABL can create a customized capital structure for growth. As your company seeks flexible capital to fuel growth, now might be the time to evaluate ABL as an alternative.

Is Asset Based Lending the Best Option for You?

Know if asset based lending is the best option for you by contacting a PNC Business Credit representative at

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The article you read was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in this article be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. The opinions expressed in this article are not necessarily the opinions of PNC Bank or any of its affiliates, directors, officers or employees.

[1] “Restructuring Trends:  Growth of ABLs,” PwC, June 2013. Available at:



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