Asset Based Lending (ABL) explained

Asset Based Lending, or ABL, is specialist form of business lending that allows medium to large sized businesses to raise cash against assets on their balance sheets. 

When is ABL used?

The money is often used in situations where it is advantageous to take cash out of the business, for example, to fund an acquisition or management buy-out. Other uses include injections of working capital, restructuring of existing funding arrangements, and supporting seasonality in turnover.

Qualifying businesses

Lenders have their own criteria, but typically your business, or the business you are acquiring, will be established with a good trading history, a solid base of owned assets, and a turnover in excess of £5m.

Qualifying assets

Qualifying assets can be either physical or intangible, for example:

  • debtors
  • stock
  • equipment
  • machinery
  • property
  • intellectual property

A lender will look at the value of the assets and lend a proportion of the value against them. The better quality the assets, the more a lender is likely to be willing to advance. Typical loans to value are: up to 95% against invoices; up to 70% against stock; up to 75% against property; and up to 85% against plant and machinery.

Loan sizes

Loan sizes are normally £5m upwards, but we have seen facilities agreed in the range of £1m. Where floating assets like stock and debtors are involved, the loan agreements can get quite complicated with different limits applied to specific debtors and stock items. It is important that you understand these and what your borrowing capacity really is.  


The lender will want the ability to take control of the assets and realise them in the event of default. For this reason, a debenture, which gives the lender a fixed and floating charge over the assets, will be required. Directors' guarantees may also be requested.

Terms, rates and fees

ABL facilities are entirely bespoke so it is very difficult for us to provide generic guidance on terms. In the spirit of providing some sort of help, loan periods might be in the range of 3-5 years. Fees will cover the lenders's due-diligence and legal costs in taking the security so can be large relative to a more straightforward facility. 

What is the difference between ABL and asset finance?

There is very little difference in principle between asset finance and ABL. Both advance an amount of money against the security of the asset. The difference is in the purpose. Asset finance is more often used to bring new or used machinery, equipment or vehicles into the business. Lease or loan repayments are then made over the useful life of the asset. ABL on the other hand is used to raise finance against existing unencumbered assets. This is sometimes referred to as 'sale and leaseback'.

What is the difference between ABL and invoice finance?

As with asset finance, there is very little difference in principle between invoice finance and ABL. This time, money is being lent against the value and security of the debtor book. Arguably, invoice finance - either invoice discounting or factoring - is more associated with day-to-day working capital requirements, whereas it is more likely to be referred to as ABL when it is associated with a specific project.

In both scenarios, the primary advantage of ABL is that physical and intangible assets can be used in combination to generate the cash that is needed. A dedicated asset finance or invoice finance facility, on the other hand, can only be structured against the asset in question.

Providers of ABL

Asset Based Lending is provided by all the main banks and some specialist providers. Generally, it is thought of as a mid-corporate or large-corporate finance facility, so lenders that focus only on small businesses are unlikely to be able to assist.

How we can help

In the first instance, one of the regulated brokers on our panel can help you determine if an ABL facility is likely to be the right solution for your funding requirements relative to other forms of finance available.

Once established, your business case can then be developed and presented to lenders with the greatest appetite to assist with this form of borrowing.

The appropriateness of the Recovery Loan Scheme (RLS) can also be considered as part of this process, and your application channelled accordingly.

Contact us for more information.

Asset Based Lending (ABL) explained

By: Neil Edwards

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