Asset-Based Lending
Your Complete Guide
Empower your business and achieve your financial goals by harnessing the potential of your balance sheet. If you want to expand your borrowing capacity, consider an asset-based line of credit with TAB Bank.
Use ABL To Take Your Financing Relationship to a New Level
Ensure short and long-term success for your business with TAB’s asset-based loans, underwritten using specialized monitoring of your collateral and credit.
With asset-based lending (ABL) from TAB Bank, you can confidently pursue your business goals with this added flexibility and credit availability.
ABL Offers:
- Flexible terms with minimal financial covenants
- More liquidity than a traditional line of credit
- The experience and care of a dedicated relationship manager
Working Capital When You Need It
An asset-based line of credit from TAB Bank helps you say “yes” to more
opportunities for growth. Fund your business in several ways, including:
- Leasing or buying new equipment
- Funding operating expenses
- Paying taxes and payroll
- Opening a new location
- Covering cash flow gaps
- Hiring new employees
- Investing in marketing and advertising
- Managing unexpected business expenses
Simple
ABL from TAB Bank requires minimal financial covenants. Spend your time running your business, not stressing over legalese and compliance.
Flexible
TAB has a full suite of working capital financing options with fully-trained, collaborative teams. We make it easy to scale financing to match your company’s needs.
Convenient
As a technology-led digital bank, TAB gives you the freedom to manage your business financing wherever and whenever you need.
What is Asset-Based Lending?
Asset-based lending is loaning money in an agreement that is secured by collateral. An asset-based loan can be secured by equipment, inventory, accounts receivable, or other property owned by the borrower.
Banks that offer ABL services, such as TAB Bank, provide this financing for businesses – not consumers.
Because the business is putting down collateral, asset-based loan rates are typically lower than the interest rates on unsecured loans. This is because, in the event the borrower defaults on the loan (fails to make payments), the bank is able to recoup some or all of their loss through the offered collateral.
Other terms used interchangeably to describe asset-based lending include commercial finance and asset-based financing.
How Does Asset-Based
Lending Work?
To qualify for asset-based lending a company will undergo examinations to determine the quality of its financial and physical assets. The examination and inventory appraisal will determine the eligible collateral and the advance rates against them that will be offered by the bank. The bank will then continue to monitor a company’s assets. A company will typically need to manage a minimum level of liquidity to remain qualified for the loan.
In order to meet the routine cash-flow demands of a business, many need to obtain lines of credit or take out loans. For example, if there is a brief delay in payments it expects to receive, a business still needs available cash to cover payroll expenses during the slow time.
If a company does not have enough cash assets or cash flow to cover a loan, banks that do asset-based lending can approve lines of credit or revolving business loans by using the physical assets of the company as collateral.
Example of Asset-Based Lending
Consider a manufacturing company that needs to secure a high line of credit against its unused inventory and accounts receivable. It comes to TAB Bank to secure additional working capital and improve cash flow.
Asset-based lending allows the manufacturing company to gain access to the working capital it needs to maintain operations and seize growth opportunities. If the manufacturing company would like to expand its asset-based credit line, it could contact the TAB relationship manager to determine the collateral eligibility of its other assets.
How Does Asset-Based Lending Differ from Invoice Factoring?
Invoice factoring involves the sale of assets, namely accounts receivables. A bank will purchase the right to collect the receivable or invoice, when it is paid, in exchange for a fee or small percentage of the invoice value.
Asset-based lending does not require the sale or transfer of accounts receivables. Rather, your company’s invoices and other assets are monitored as collateral against a revolving line of credit.
While both forms of financing leverage accounts receivables to give you access to working capital, they each have their own advantages. Asset-based lending is a fit for businesses with larger revenue streams, many debtors, and who want flexibility to scale at competitive rates.
Is it Hard to Get ABL Financing?
Asset-based lending is not a fit for all businesses, but it can be easy to determine if you may qualify.
First, your business must have unpaid invoices or outstanding accounts receivable to use as collateral against the credit line. Invoices that are project- or milestone-based may not be eligible to use as collateral.
Second, your debtors should be primarily US-based and have reliable payment histories. Industries that deal primarily with insurance companies (i.e. healthcare) may not be a fit for ABL from TAB Bank.
Why Choose Asset-Based Lending?
Asset-based lending is a reliable way to get access to working capital for your business whenever you need it.
ABL offers better rates than other receivables-based lending (such as Factoring) and has fewer covenants than a traditional bank loan.
With asset-based lending, you retain ownership of your companies receivables and other assets, but gain additional credit to maintain your company operations, expand your business, and/or embrace new opportunities for growth.
What is the Difference Between Asset-Based Lending vs. Cash Flow Lending?
Asset-based lending allows you to borrow against the value of your assets, while cash flow lending—often called traditional business lending—lets you borrow based on your projected cash flow.
Here’s a comparison of these lending types:
Asset-Based Lending (ABL)
Collateral Requirement: Loans are secured by assets like inventory, equipment, or receivables.
Eligibility: Based on the value of the collateral provided.
Financial Covenants: Typically fewer covenants required.
Qualification Ease: Generally easier to qualify for, even with a less-than-perfect credit history.
Cash Flow Lending
Collateral Requirement: Often doesn’t require physical assets as collateral.
Eligibility: Based on your current and projected cash flow and overall financial health.
Financial Covenants: More covenants and financial conditions are usually required.
Qualification Difficulty: Can be harder to qualify for, especially if your credit history is poor.
Asset-based lending uses your business’s assets to secure financing, which can be beneficial if you have a mixed credit history. Cash flow lending relies on the strength of your business’s future income and financial stability, often necessitating a better credit profile and stricter financial requirements.
TAB Bank has the resources you need.
Many other asset-based lenders do not have the depth of industry experience or the available resources that TAB Bank does. Due to the nature of our asset-based lending process, TAB Bank is able to fund deals and service businesses that other banks have to turn away.
Reap the Benefits of Asset-Based Lending from TAB Bank
With asset-based lending, your business has broad use of proceeds and it can cover financial needs such as:
