An asset-based loan (ABL) is a type of business financing that is secured by company assets. Most asset-based loans are structured to work as revolving lines of credit. This structuring allows a company to borrow from assets on an ongoing basis to cover expenses or investments as needed.
The borrowing base is the amount of money that the asset-based lending company lets you borrow. The borrowing base is determined as a percentage of the value of the collateral that has been pledged. Generally, companies can borrow 75% – 85% of the value of their accounts receivable. The borrowing base of inventory and equipment is often 50% or less.
Asset based lenders inspect ledgers and assets regularly to determine and update the value of the borrowing base. Since it often involves accounts receivable, the borrowing base
There is no better product, per se. The “better” solution depends on your corporate needs, the type of collateral you have, the size of your company, and the general risk of the transaction.
Larger companies tend to prefer asset-based loans due to the lower ongoing cost and flexibility. Smaller companies tend to prefer factoring because it has low due diligence costs and is easier to obtain.