AFO · Glossary
Asset-Based Lending (ABL)
Revolving credit secured by receivables and inventory, with the borrowing capacity tied to the eligible collateral.
What this term means in practice
Asset-based lending is a revolving credit facility where the maximum borrowing capacity (the "borrowing base") is calculated dynamically from the eligible collateral, typically 85% of qualifying accounts receivable plus 50 to 65% of finished-goods inventory. The line grows as AR and inventory grow, pays down as cash lands, and accrues interest only on the drawn balance.
ABL is the right structure for working-capital-intensive businesses: distributors, manufacturers, and staffing firms whose customer collection cycles outrun their supplier payment cycles. The trade-off vs. a conventional cash-flow-underwritten line is more lender oversight (monthly borrowing-base certificates, periodic field exams) in exchange for higher headroom and looser covenants.
ABL is usually preferred over factoring when the business has diversified customers and healthy margins; the 1 to 4% per-invoice discount on factoring usually erodes more margin than the all-in ABL rate of Prime + 2 to 5%.
Where this matters in the catalog
Programs that turn on Asset-Based Lending.
ABL Revolver (Asset-Based Lending)
Revolving line tied to eligible receivables and inventory. Scales with the business.
Invoice Factoring & AR Finance
Immediate cash against outstanding receivables. Suits B2B businesses with long DSO.
See also
Related glossary terms.
- Glossary
- Glossary
- Glossary
Where the definition meets your situation.
The CPA can walk through how this concept applies to your business in twenty minutes, what providers will ask, where the negotiation matters, what the trade-offs actually look like in your numbers.