An asset based loan (ABL) is a type of business financing that is secured by company assets. Most asset based loans are structured to work as revolving lines of credit. This structuring allows a company to borrow from assets on an ongoing basis to cover expenses or investments as needed.
Companies use asset based loans for working capital to operate or grow. Often, companies that request an ABL have cash flow problems. However, many of these cash flow problems stem from rapid growth.
What Assets can be used as collateral?
The main collateral for an asset based loan is usually accounts receivable. However, other collateral such as inventory, equipment, real estate, and other assets can also be used.
What is the borrowing base? How is it determined?
The borrowing base is the amount of money that the asset based lending company lets you borrow. The borrowing base is determined as a percentage of the value of the collateral that has been pledged. Generally, companies can borrow 50% – 75% of the value of their asset.
What is the cost of an ABL?
The cost of an asset based loan is determined by the size of the loan, the type of collateral, and general risk. Most loans are priced using an annual percentage rate (APR). However, charges for other services are also common.