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Asset-Based Lending: How to Use Your Business Assets to Get Financing
Every business has assets. But not every business has the cash flow or credit history that traditional lenders want to see. If your company is sitting on a healthy stack of unpaid invoices, valuable equipment, or a warehouse full of inventory, you may already have everything you need to unlock significant financing - even if the bank keeps saying no.
Asset-based lending (ABL) is a form of financing where your business borrows against the value of its existing assets rather than relying solely on credit scores or cash flow projections. It is one of the most practical tools available for growing companies, businesses in turnaround, and industries that carry large amounts of receivables or physical inventory. Instead of waiting for customers to pay or scrambling to show profitable P&L statements, you use what you already own to access working capital now.
In this guide, we break down exactly how asset-based lending works, which assets qualify, what advance rates look like, and how to determine if this type of financing is right for your business. Whether you are exploring accounts receivable financing for the first time or comparing it to other options, this article gives you a clear picture of ABL from start to finish.
What Is Asset-Based Lending?
Asset-based lending is a type of business financing secured by specific company assets. Rather than underwriting a loan based primarily on your business credit score, revenue trajectory, or EBITDA, an asset-based lender evaluates the quality and liquidation value of the assets you are pledging as collateral. The loan amount, or credit facility, is directly tied to what those assets are worth - not just what your business earns.
At its core, ABL differs from traditional cash flow lending in one fundamental way: the collateral drives the deal. In a cash flow loan, the lender is betting on your future income. In an asset-based loan, the lender is lending against something tangible - invoices owed to you, physical inventory sitting in your warehouse, or machinery on your production floor. This makes ABL significantly more accessible for businesses that may not show strong profitability on paper but hold substantial asset value.
The most common assets used in ABL facilities include:
- Accounts receivable - invoices from creditworthy customers that are outstanding and not yet past due
- Inventory - raw materials, work-in-progress, and finished goods
- Equipment and machinery - owned equipment with established market value
- Real estate - commercial property owned by the business
- Intellectual property - patents, trademarks, and licensing agreements in select cases
Asset-based lending is not a niche product. According to the U.S. Small Business Administration, access to capital is one of the top challenges for small and mid-sized businesses. ABL fills a critical gap for companies that have real assets but struggle to qualify for conventional loans. It is widely used in manufacturing, wholesale distribution, staffing, retail, healthcare, and logistics - industries where businesses routinely carry large receivable balances or significant physical assets.
Key Insight
Asset-based lending is not a last resort - it is a strategic financing tool used by companies of all sizes, including Fortune 500 corporations. Many businesses choose ABL specifically because it scales with their asset base as they grow, without requiring them to renegotiate terms every time they need more capital.
Types of Assets Used in Asset-Based Lending
Not all assets are treated equally in an ABL facility. Lenders assign advance rates based on how quickly and reliably an asset can be converted to cash if the borrower defaults. Here is a breakdown of the most common asset types and how they are typically treated.
Accounts Receivable
Receivables are the most liquid and most preferred collateral in asset-based lending. When your business has invoiced customers but has not yet been paid, those invoices represent real money owed to you. Lenders are comfortable lending against 70 to 85 percent of eligible receivables, meaning accounts that are less than 90 days old, owed by creditworthy customers, and not subject to disputes or offsets. This type of financing is also closely related to accounts receivable financing, which can be structured in multiple ways.
Inventory
Inventory financing is more complex because the value of inventory depends on how quickly it can be sold, to whom, and at what discount. Raw materials and finished goods that have a ready market command higher advance rates than specialty items or work-in-progress. Lenders typically advance 40 to 60 percent of the appraised or net orderly liquidation value (NOLV) of eligible inventory.
Equipment and Machinery
Equipment serves as strong collateral when it has an established resale market. Lenders typically look at the forced liquidation value or NOLV when assessing equipment. Advance rates generally range from 60 to 80 percent of appraised value. If you need financing specifically for acquiring new equipment, equipment financing may be the more targeted option.
Real Estate
Commercial real estate owned by the business can be included in an ABL facility, typically with advance rates of 60 to 75 percent of appraised value. This is less common in pure ABL structures and more often seen in hybrid facilities that blend ABL with real estate secured lending.
Intellectual Property
Patents, trademarks, and licensing agreements are occasionally included as collateral, particularly in technology and media companies. However, IP is difficult to value and rarely used as the primary collateral type in a standard ABL deal.
| Asset Type | Typical Advance Rate | Liquidity | Notes |
|---|---|---|---|
| Accounts Receivable | 70% - 85% | High | Must be under 90 days, non-disputed |
| Inventory | 40% - 60% | Medium | Based on NOLV; finished goods preferred |
| Equipment | 60% - 80% | Medium | Appraisal required; must have resale market |
| Commercial Real Estate | 60% - 75% | Low-Medium | Formal appraisal required; slower to liquidate |
| Intellectual Property | Varies widely | Low | Rarely primary collateral; specialized lenders only |
How Asset-Based Lending Works
Understanding the mechanics of an ABL facility helps you use it strategically. Unlike a term loan where you receive a lump sum and pay it back over a fixed schedule, most asset-based lending facilities are revolving - meaning your availability fluctuates based on the current value of your collateral pool.
The Borrowing Base
The borrowing base is the formula that determines how much you can borrow at any given time. It is calculated by applying advance rates to your eligible assets. For example, if you have $500,000 in eligible receivables and a lender advances 80 percent, your borrowing base from receivables alone is $400,000. Add in eligible inventory at a 50 percent advance rate on $300,000, and you get another $150,000, for a total borrowing base of $550,000.
Field Exams and Audits
Before establishing an ABL facility, lenders typically conduct a field examination - a detailed audit of your books, receivables aging, inventory records, and internal controls. This is more rigorous than a standard loan underwriting because the lender needs to verify that the assets actually exist and are properly valued. Field exams may recur periodically (often annually or semi-annually) to ensure ongoing compliance.
Borrowing Base Certificates
Once your facility is established, you will typically submit borrowing base certificates (BBCs) on a regular basis - often weekly or monthly. A BBC is a report that tells the lender the current value of your eligible collateral, from which they calculate how much you can draw. This ongoing reporting requirement keeps the lender informed about your asset levels and any changes in collateral quality.
Revolving Structure
Most ABL facilities function like a line of credit. You draw funds when you need them, repay as your customers pay their invoices, and redraw as new receivables are generated. This revolving nature makes ABL extremely well-suited for businesses with cyclical cash flow patterns - you only pay interest on what you borrow, not the full facility size.
How the Revolving Cycle Works
You invoice a customer for $100,000. Your lender advances 80% ($80,000) against that receivable. When the customer pays, the $100,000 goes to a lockbox controlled by the lender, the $80,000 advance is repaid, and the remaining $20,000 (minus fees) is returned to you. The cycle repeats with every new invoice - giving you continuous access to capital as your business operates.
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Apply Now - It's FreeAsset-Based Lending vs. Cash Flow Lending
When businesses seek financing, they typically encounter two broad categories: asset-based lending and cash flow lending. Understanding the difference is critical to choosing the right structure for your situation.
Cash flow lending - including traditional bank loans, working capital loans, and SBA loans - is underwritten based on your business's ability to generate future income. Lenders analyze your revenue, profit margins, EBITDA, and debt service coverage ratios. The assumption is that your business will keep generating cash and use that cash to repay the loan. If you have strong financials and a solid track record, cash flow lending often offers lower rates and simpler terms.
Asset-based lending is underwritten based on what you own, not just what you earn. This makes it more accessible to businesses with thin margins, cyclical revenue, or recent financial challenges - as long as those businesses have quality assets.
| Factor | Asset-Based Lending | Cash Flow Lending |
|---|---|---|
| Primary underwriting basis | Asset value and quality | Revenue, profitability, DSCR |
| Credit requirements | Flexible - asset quality matters more | Typically 650+ credit score |
| Borrowing limit | Tied to collateral value | Tied to income/EBITDA |
| Best for | Asset-rich, cash-constrained businesses | Profitable businesses with clean financials |
| Reporting requirements | Regular borrowing base certificates | Annual financial statements |
| Flexibility | Scales up/down with assets | Fixed amount, renegotiated periodically |
| Speed to fund | Can be faster for established facilities | Varies widely by lender type |
Many businesses use both types of financing strategically. For example, a company might use a business line of credit for day-to-day operational needs while maintaining an ABL facility to bridge gaps between invoicing and collection. The right mix depends on your industry, growth stage, and asset profile.
For a deeper look at how secured and unsecured financing differ, see our guide on secured vs. unsecured business loans.
Who Uses Asset-Based Lending?
Asset-based lending is not limited to any single industry or business type. However, it tends to be most valuable - and most commonly used - in situations where businesses carry significant assets but face working capital gaps.
Manufacturers
Manufacturing companies carry large amounts of raw materials, work-in-progress, and finished goods. They also typically have expensive machinery and equipment. ABL facilities allow manufacturers to borrow against their inventory and equipment values, providing the liquidity needed to purchase materials, pay labor, and fulfill orders before customers pay.
Wholesale Distributors
Distributors buy inventory in bulk, sell to retail or commercial customers, and often wait 30 to 90 days for payment. This timing gap between purchasing and collecting creates a persistent working capital need. ABL - particularly receivables-based lending - is an ideal fit because the business constantly generates new eligible invoices.
Staffing Companies
Staffing firms pay their workers weekly but invoice clients on longer terms. The ongoing receivables generated by staffing operations make this one of the highest-volume industries for asset-based facilities. Staffing companies can use their receivables as a revolving source of capital to fund payroll without depending on client payment timing.
Retailers
Retail businesses with significant inventory - particularly specialty or consumer goods retailers - can borrow against their stock. Seasonal retailers often use ABL to finance the inventory buildup before peak seasons without tying up cash or maxing out other credit lines.
Companies in Turnaround or Transition
Businesses going through a restructuring, change of ownership, or recovery from a financial setback often find that traditional lenders are unwilling to extend credit. ABL lenders focus on asset quality rather than historical performance, making ABL an important bridge financing tool for companies that are stabilizing or rebuilding.
Businesses with Lower Credit Profiles
If your personal or business credit is below the threshold required for traditional loans or SBA loans, asset-based financing may still be available. The collateral offsets some of the risk that credit scores represent in conventional underwriting.
Understanding Advance Rates
Advance rates are at the heart of every asset-based lending facility. They determine how much of your collateral's value you can actually borrow against - and understanding what drives these rates up or down helps you structure your facility more effectively.
What Is an Advance Rate?
An advance rate is the percentage of an asset's eligible value that a lender will lend against. If a lender advances 80 percent on accounts receivable and you have $1,000,000 in eligible receivables, you can borrow up to $800,000 from that collateral. The remaining 20 percent represents the lender's cushion against collection losses, disputes, or dilution.
Typical Advance Rates by Asset Type
- Accounts Receivable: 70% to 85% of eligible AR - highest rate because receivables are easiest to collect
- Finished Goods Inventory: 50% to 60% of NOLV - marketable goods with known buyers command better rates
- Raw Materials Inventory: 40% to 55% of NOLV - depends heavily on commodity type and market demand
- Equipment/Machinery: 60% to 80% of appraised NOLV - established market value is key
- Commercial Real Estate: 60% to 75% of appraised value - depends on property type and location
What Affects Your Advance Rate?
Several factors influence the specific advance rate you receive:
- Customer concentration: If 50 percent or more of your receivables come from a single customer, lenders may reduce the advance rate on that portion or exclude it from the eligible pool entirely
- Aging quality: Receivables where customers regularly pay on time support higher advance rates; slow-paying customers reduce them
- Industry: Lenders with experience in your industry will have better benchmarks for loss rates and liquidation values
- Historical dilution: Dilution refers to credits, chargebacks, discounts, and returns that reduce the actual amount collected on invoices. High dilution = lower advance rates
- Inventory type: Perishable, specialized, or seasonal inventory commands lower rates than commodity or widely-traded finished goods
Pros and Cons of Asset-Based Lending
Like any financing structure, ABL has real advantages and real trade-offs. Here is an honest look at both sides.
| Advantages | Disadvantages |
|---|---|
| Accessible to businesses with lower credit scores | Reporting requirements can be time-intensive |
| Credit facility scales as assets grow | Field exams add upfront complexity |
| Revolving structure provides flexible access | Costs can exceed traditional loans for some borrowers |
| You pay interest only on what you borrow | Lender has control over collateral during default |
| Works during turnarounds and transitions | Not suitable if you have minimal assets |
| Larger facilities available than many alternatives | Customer concentration limits can restrict borrowing |
| No restriction on how working capital is used | Lockbox requirements change your cash flow management |
Callout: The Scalability Advantage
One of the most underappreciated benefits of asset-based lending is that the facility grows with your business. As your receivables increase and your inventory value rises, your borrowing base expands automatically - without requiring a renegotiation or new application. This makes ABL one of the most growth-friendly financing structures available to mid-market companies.
The Borrowing Base Explained
The borrowing base is the engine that drives an ABL facility. It determines how much you can borrow at any given time and changes as your assets change. Understanding how it is constructed gives you more control over your financing capacity.
Eligible vs. Ineligible Assets
Not all of your assets automatically qualify as collateral. Lenders define eligibility criteria that exclude assets that are too risky, too difficult to collect, or too illiquid. Common reasons an asset is deemed ineligible include:
- Receivables more than 90 days past invoice date
- Invoices from customers who are also your suppliers (cross-aging)
- Receivables from customers that are bankrupt or in dispute
- Inventory that is damaged, obsolete, or consigned
- Concentration limits exceeded (typically if one customer represents more than 20-25% of total AR)
Concentration Limits
Lenders protect themselves from over-reliance on any single customer by capping how much of your borrowing base can come from one source. If a customer represents 30 percent of your receivables but the lender's concentration limit is 20 percent, only 20 percent of your total eligible AR from that customer counts. The rest is excluded from the borrowing base.
Example Borrowing Base Calculation
Here is how a typical borrowing base might look for a wholesale distributor:
| Asset | Gross Value | Eligible Amount | Advance Rate | Borrowing Base |
|---|---|---|---|---|
| Accounts Receivable | $1,200,000 | $980,000 | 80% | $784,000 |
| Finished Goods Inventory | $600,000 | $550,000 | 50% | $275,000 |
| Equipment (NOLV) | $400,000 | $400,000 | 70% | $280,000 |
| Total Available Borrowing Base | $1,339,000 | |||
In this example, the business could draw up to $1,339,000 against its assets. As invoices are paid and new ones are generated, the receivables portion fluctuates - and so does the available credit. This dynamic structure is what makes ABL so powerful for businesses with active, growing asset bases.
How to Qualify for Asset-Based Lending
Qualifying for asset-based lending is different from qualifying for a traditional business loan. The focus shifts from your income statement to the quality and quantity of your collateral. Here is what lenders evaluate.
Asset Quality
The most critical factor is the quality of your collateral. For receivables, this means customers with strong payment histories and no concentration issues. For inventory, it means goods with a verifiable market and manageable obsolescence risk. Lenders will want to review your aging reports, customer lists, and inventory records before approving a facility.
Business History and Operations
While credit score is less determinative in ABL than in conventional lending, lenders still want to see that your business is operational and generating real transactions. Most ABL lenders prefer businesses with at least 12 to 24 months of operating history, though newer businesses with substantial assets may qualify with strong collateral and management experience.
Reporting Infrastructure
ABL facilities require ongoing reporting. You need reliable accounting systems capable of generating accurate aging reports, inventory counts, and borrowing base certificates. Lenders will assess your internal controls and your team's ability to manage the reporting requirements. Businesses that cannot produce timely, accurate financial reports will struggle to maintain an ABL facility.
Field Exam Process
The field exam is a pre-closing audit conducted by the lender or a third-party firm. Examiners will visit your business to verify collateral, review accounting records, evaluate internal controls, and assess customer creditworthiness. This process can take several weeks. Being well-prepared with organized receivables aging, inventory records, and customer contracts speeds the process significantly.
Minimum Facility Size
Traditional ABL facilities through major banks typically have minimums of $5 million or more because of the infrastructure required to administer them. However, many alternative lenders and specialty finance companies offer asset-based facilities starting at $500,000 or even lower, making this type of financing accessible to smaller businesses.
Preparation Tip
Before applying for an ABL facility, get your receivables aging up to date, clean up any overdue invoices, document your inventory with current valuations, and organize your last 12 months of financial statements. The more organized your records, the faster and smoother the field exam process will be - and the better your advance rates are likely to be.
How Crestmont Capital Offers Asset-Based Financing
Crestmont Capital works with businesses across the United States to connect them with the right asset-based financing solutions for their specific situation. We understand that no two businesses are the same - and no two ABL deals are structured the same way.
Whether you are looking for a receivables-based facility to bridge cash flow gaps, an inventory line to support seasonal purchasing, or a comprehensive multi-asset ABL structure, Crestmont Capital has the lending relationships and expertise to find the right fit. Our team works with manufacturers, distributors, service companies, and businesses in transition - including those who have been turned down by traditional banks.
Here is what sets us apart when it comes to asset-based financing:
- No one-size-fits-all approach: We evaluate your specific asset mix and business model to match you with the right lender and structure
- Access to multiple lenders: We work with a wide network of asset-based lenders, from community banks to specialty finance companies and alternative lenders
- Guidance through due diligence: Our team helps you prepare for the field exam and borrowing base requirements so you are not caught off guard
- Speed without sacrificing fit: We move efficiently while ensuring the facility terms actually work for your business
- Broad product access: In addition to ABL, we can evaluate whether traditional term loans, SBA products, or other structures might complement or replace an ABL facility
Explore all of your financing options at our Small Business Financing Hub, where you can compare products and connect with a specialist.
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Start Your ApplicationReal-World Asset-Based Lending Scenarios
Abstract concepts make more sense when you can see how they play out in practice. Here are three realistic scenarios showing how different types of businesses use asset-based lending to solve specific challenges.
Scenario 1: A Wholesale Distributor Uses AR Financing to Fund Growth
A specialty food distributor generates $4 million in annual revenue, selling to grocery chains and restaurants on net-30 and net-60 terms. The company is profitable but consistently cash-constrained because customers take 45 to 60 days to pay, while suppliers expect payment in 15 to 30 days. A traditional bank declined their loan application because their profit margins are thin and their credit score is below the bank's threshold.
The company works with Crestmont Capital to establish a $750,000 revolving ABL facility secured by their accounts receivable. They submit borrowing base certificates weekly. As new invoices are generated, they draw against the facility to pay suppliers and fund operations. As customers pay, the line is repaid and becomes available again. Within six months, the company has taken on three new grocery accounts it previously could not have funded, growing revenues by 22 percent.
Scenario 2: A Manufacturer Uses Inventory and Equipment to Fund Operations
A mid-sized manufacturer of industrial components has $2 million in equipment and $800,000 in raw materials and finished goods. The company is in a turnaround after losing a major customer. Revenue dropped and the bank pulled their line of credit. Without financing, they cannot purchase materials to fulfill their remaining orders.
An ABL lender conducts a field exam and establishes a $1.2 million facility secured by the equipment ($560,000 available) and inventory ($320,000 available). The company uses the facility to fund material purchases and payroll while landing new customers. Over 18 months, they rebuild revenue and eventually qualify for a more traditional structure at lower rates. The ABL facility served as a critical bridge through their recovery.
Scenario 3: A Staffing Company Uses an Ongoing AR Facility to Fund Payroll
A healthcare staffing company places temporary nursing and therapy staff with hospitals and long-term care facilities. They pay their workers weekly but invoice clients on net-45 terms. The gap between payroll and collection creates a persistent working capital need of $400,000 to $600,000 at any given time.
The company establishes a $1 million revolving ABL facility secured by their receivables. Each week, they draw against newly generated invoices to fund payroll. As client facilities pay, the line is paid down. The facility becomes a permanent fixture of the company's financial structure - not a temporary fix but an ongoing operating tool that allows the company to grow its placed workforce without worrying about payroll timing.
Frequently Asked Questions
Your Assets Are Working Capital Waiting to Happen
Stop leaving capital locked up in your receivables, inventory, and equipment. Apply today and find out how much your business qualifies for.
Get Your Free QuoteNext Steps: Unlock Your Business Assets
Gather Your Asset Documentation
Pull together your accounts receivable aging report, customer list, inventory records, and equipment appraisals. The cleaner your records, the stronger your application and the better your advance rates.
Estimate Your Borrowing Base
Use the advance rate ranges in this guide to estimate what your eligible assets might support. Multiply eligible receivables by 80%, eligible inventory by 50%, and eligible equipment by 70% to get a rough borrowing base figure.
Connect With a Financing Specialist
Reach out to Crestmont Capital. Our specialists will review your asset profile, discuss your financing needs, and match you with the right ABL lender and structure. There is no cost and no obligation to explore your options.
Prepare for the Field Exam
Once a lender expresses interest, they will conduct a field exam. Work with your Crestmont Capital advisor to understand what the examiner will review and ensure your records are organized and complete. A smooth field exam leads to faster closing and better terms.
Close and Draw
Once your facility is established, you can begin drawing against your borrowing base. Submit regular borrowing base certificates, manage your collateral responsibly, and use the capital to grow your business. The facility scales with you as your assets grow.
Conclusion
Asset-based lending is one of the most flexible and powerful financing tools available to businesses that carry significant receivables, inventory, or equipment. Rather than forcing you to fit the mold of a traditional borrower, ABL meets you where you are - evaluating what your business actually owns and giving you access to capital proportional to those assets.
For businesses in manufacturing, distribution, staffing, retail, and many other industries, ABL fills a critical gap between what banks are willing to lend and what the business actually needs to grow. It scales with your asset base, revolves as your receivables cycle, and provides meaningful capital even when credit scores or profit margins are not picture-perfect.
Whether you are exploring asset-based lending for the first time or looking to expand an existing facility, the key is understanding your asset profile and finding the right lending partner. Crestmont Capital specializes in exactly that - helping businesses leverage what they already own to unlock the financing they need.
According to Forbes, asset-based lending has grown significantly in popularity as businesses look for flexible alternatives to traditional bank financing. And as CNBC has reported, access to working capital remains one of the top priorities for small and mid-sized businesses navigating economic uncertainty. If your business has strong assets but limited access to conventional credit, ABL deserves serious consideration.
Ready to find out what your assets are worth to a lender? Apply now with Crestmont Capital and take the first step toward unlocking capital that is already waiting in your business.
Disclaimer: The information provided in this article is for general educational purposes only and is not financial, legal, or tax advice. Funding terms, qualifications, and product availability may vary and are subject to change without notice. Crestmont Capital does not guarantee approval, rates, or specific outcomes. For personalized information about your business funding options, contact our team directly.
