What is an Asset-Based Lending band? What are the requirements?

What is an Asset-Based Lending band? What are the requirements?

In the first instance, perhaps we should explain Asset-Based Lending (ABL). This is a generic term given to multiple different disciplines that look at funding specific types of assets, including Property, Trade Debtors, Stock, Plant and Machinery, Vehicles, and Supply Chain Finance.

The correct use of ABL can swiftly and effectively enable a business to “sweat the assets” and gain maximum funding.  Unlike many traditional bank-style facilities, ABL funding revolves around the value of the asset in question, which will form the backbone of the security taken.

It is important to note that not every business is eligible for every type of ABL funding. The key is to align the right product in the right circumstances to achieve the business’s needs. This is where a good finance broker with strong experience in each field can be invaluable.

In this blog, we’ll delve into some of the requirements for obtaining asset-based lending and equip you with some knowledge to help you.

Strong Collateral
Probably the most critical prerequisite for asset-based lending is robust collateral/security. The lender will scrutinise your assets to ensure their value is sufficient to secure the loan. In the event of a default, the lender should be able to recover their funds by selling your assets. The amount advanced, terms allowed and method of funding will depend on the nature of the asset.

Financial Stability
Although asset-based lending is based on collateral, lenders will still want to see that your business is financially stable. They’ll review your financial statements / annual accounts to evidence that you can service the facility.

Creditworthiness
While asset-based lending primarily hinges on collateral, it’s worth noting that some lenders may also consider your creditworthiness. They might assess your credit score and history to ensure you have a good track record of repaying debt.

Industry Experience
Some lenders may require that you have industry experience in your business’s field. This is especially true for companies considered risky or highly volatile.

Personal Guarantees
In some cases, lenders may require that you provide a personal guarantee. This means you’ll be personally responsible for paying back the loan if your business cannot do so.

In summary, obtaining asset-based lending requires strong collateral and to a lesser degree, financial stability, creditworthiness, industry experience, and sometimes a personal guarantee. If you’re considering asset-based lending, it’s essential to research and find a lender/product that is a good fit for your business.

You can also read more about Asset Finance in our Knowledge Bank

This site covers Business Finance and Property Finance. Visit Sterling Capital Reserve for our Corporate Finance services