What is Asset Based Lending?

Asset Based Lending (ABL) is a financing solution that gives businesses access to vital funds by using existing assets as collateral. Lenders assess the value of these assets and provide funding based on their worth. Common examples include stock, invoices, property, commercial vehicles, and machinery.

This type of lending allows businesses to unlock cash quickly and access more flexible terms than traditional loans, helping improve cash flow and support growth plans. According to UK Finance, Asset-Based Lending and Invoice Finance together account for over £20 billion of lending in the UK and are growing annually at more than 12%.

How does Asset Based Lending work?

Asset Based Lending is well-suited to companies that are asset-rich, have high working capital needs, or are undergoing a restructure. ABL is usually structured as a term loan, where the lender provides a lump sum of cash repaid in monthly instalments with added interest and fees.

The amount a business can borrow depends on the loan-to-value (LTV) ratio, which compares the loan amount against the asset’s value. Assets that are easily converted into cash (high liquidity) tend to unlock higher borrowing potential. For instance, with invoice finance, businesses can access up to 90% of the value of unpaid invoices within 24 hours.

For SMEs seeking funding for mergers, acquisitions or management buy-outs (MBOs/MBIs), ABL offers a streamlined approach. Instead of dealing with multiple funders, companies can work with one dedicated provider, simplifying the process and reducing admin time.

Types of assets used in ABL

Businesses can leverage a wide range of assets to secure funding, such as:

• Accounts Receivable: Outstanding invoices or payments owed to the business.
• Stock/Inventory: Goods or raw materials held for sale or use.
• Machinery & Equipment: Tangible hard assets such as manufacturing equipment, vehicles or tools.
• Vehicles: Cars, vans, HGVs and tractors.
• Commercial Property: Land, offices, warehouses or industrial buildings.

Benefits of Asset Based Lending

• Access to more capital: Using multiple assets simultaneously can unlock higher funding than unsecured options.

• Retain control of your business: Businesses keep using essential assets while leveraging their value.

• Flexible funding: Suitable for a wide range of needs including growth, acquisitions, or restructuring.

• Improved cash flow: Provides working capital to manage overheads and pursue new opportunities.

• One-stop solution: Avoids dealing with multiple lenders, saving time and admin.

Risks and considerations

• Risk of losing assets: If repayments are missed, lenders can reclaim and sell the secured assets.

• Fees and charges: Early repayment or defaults can trigger additional costs.

• Not all assets qualify: Assets must meet criteria such as significant value, liquidity, and low depreciation.

ABL vs. Traditional Loans

The key difference between asset-based lending and traditional loans lies in collateral and risk assessment. Traditional loans focus on creditworthiness and cash flow, whereas ABL secures funding against tangible assets. This makes ABL particularly valuable for businesses with significant assets but limited access to unsecured credit.

Start using Asset Based Lending today

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, we provide tailored Asset Based Lending solutions that combine secured loans, invoice finance and asset finance to help businesses unlock the value of their assets.

Whether you’re looking to stabilise cash flow, fund an acquisition or support a management buy-out, our team can create a flexible solution that grows with your business.

If you would like to learn more about Asset Based Lending solutions available with Time Finance, get in contact with our ABL team today: [email protected].