Asset Based Lending is a financing solution that allows businesses to use their own assets as security for a loan. Lenders assess the asset and provide funding based on its value. Common assets used for this type of lending include stock, invoices, property, commercial vehicles and machines. This allows businesses to obtain funds based on the value of their assets, providing more flexible terms than traditional loans.
How does Asset Based Lending work?
Asset Based Lending is ideal for companies that are asset-rich, have high working capital needs, or are undergoing a restructure. ABL is usually structured as a term loan. The lender provides a lump sum of cash, which the business repays in monthly instalments. Additional costs, such as fees and interest, may also apply. This allows businesses to inject funds where needed and strengthen cash flow to support their unique financial needs. In 2023, UK Finance found that the combined annual turnover of businesses supported by ABL products was over £315 billion.
The amount you can borrow with Asset Based Lending depends on the value of the assets used as security. Many lenders calculate this using the loan-to-value (LTV) ratio, which involves dividing the loan amount by the value of the asset.
You’re more likely to receive a larger sum if the lender could convert the asset into cash quickly (known as liquidity). With invoice finance you can access up to 90% of the value of your unpaid invoices.
Types of Assets used in ABL
Here are the types of assets commonly used in Asset Based Lending (ABL):
- Accounts Receivable: Outstanding invoices or payments owed to a business.
- Stock: Goods or raw materials held for sale or use in business operations.
- Machinery and Equipment: Tangible hard assets like manufacturing equipment, vehicles, or tools.
- Vehicles: Use company cars, vans, HGVs, and tractors as security.
- Commercial Property: Leverage property, such as land or buildings, for capital.
The benefits and pros of Asset Based Lending
More capital:
The secured nature of this funding, combined with the ability to use multiple assets simultaneously, allows you to access higher amounts of cash than other financial products.
Retain control and keep equity in your business:
If the asset is essential to your business, you can continue using it whilst using its value to access funding. This ensures uninterrupted operations and long-term financial stability.
Gives your business more funding options:
You can use all types of assets that are in your business for funding.
Improve your business’s cash flow:
Improve the money you have coming into your business by leveraging the value of your assets, this money can be used to stabilise cash flow and support growth plans.
Help your business to grow:
Asset Based Lending can support Management Buy-Outs (MBOs), Management Buy-Ins (MBIs), merges and acquisitions.
The cons and risks of Asset Based Lending
Risk of losing assets:
Failing to keep up with repayments could result in the lender reclaiming and selling the asset you used as security.
Charges & fees:
If you default on payments or attempt to pay off the loan early, you may face charges.
Not all assets qualify as security:
Lenders have specific criteria that an asset must meet to be used as collateral for a loan or line of credit. Typically, qualifying assets must hold significant value, depreciate slowly or appreciate over time, and be easily converted into cash.
Where to get an Asset Based Lending facility?
When searching for an asset-based loan, you have two options. You can either work with a finance broker or going directly to a lender. The main difference is that brokers act as intermediaries, sourcing funding from lenders and help to arrange the facilities for a commission. At Time Finance, we’re a lender that works with both intermediaries and business owners. Offering a flexible approach to Asset Based Lending. This ensures your business receives the funding with personalised service tailored to your unique needs and financial situation. With Time Finance, you can expect transparent terms and a commitment to supporting your business every step of the way
What’s the difference between Asset Based Lending and a traditional loan?
Asset Based Lending differs from traditional loans mainly in collateral requirements and risk assessment. While traditional loans focus on creditworthiness and cash flow for approval, asset based lending uses tangible assets as collateral. This method allows lenders to evaluate risk based on the value of the secured assets, potentially offering better terms for borrowers with significant collateral. As a result, asset based lending provides access to capital that may not be available through traditional financing options.
Start using Asset Based Lending today with Time Finance
At Time Finance, our tailored Asset Based Lending packages combine finance solutions like secured loans, asset finance, and invoice finance. These solutions allow businesses to leverage assets to secure the capital they need.
If you would like to learn more about Asset Based Lending solutions available with Time Finance, get in contact with our ABL team today: assetbasedlending@timefinance.com