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Asset-Based Lending Broker Program

Asset-based lending is one of the most useful commercial finance products for brokers working with established companies whose financial strength sits on the balance sheet.

A distributor may have $2 million of receivables but limited cash. A manufacturer may carry substantial inventory while customers pay on 60-day terms. A staffing company can show strong sales while weekly payroll arrives long before corporate customers pay.

Those are not ordinary unsecured-loan files.

An asset-based lending broker program gives independent commercial finance brokers another way to structure them.

Quick Answer: An asset-based lending broker program lets independent brokers place commercial financing secured primarily by business assets such as accounts receivable, inventory and sometimes equipment. The lender establishes a borrowing base from eligible collateral, monitors the assets after closing and adjusts availability as collateral changes. Strong ABL brokers understand collateral, liens, concentration and reporting—not just revenue.

What is an asset-based lending broker program?

An ABL broker program connects independent brokers with financing providers that specialize in collateral-driven commercial credit.

The originating broker identifies the financing need, collects the financial and collateral information and determines whether the transaction looks like a legitimate ABL opportunity.

The brokerage or ABL financing partner can then help with:

• lender matching;
• borrowing-base analysis;
• receivable eligibility;
• inventory evaluation;
• lien and priority issues;
• collateral diligence;
• deal structuring;
• underwriting conditions; and
• closing coordination.

The broker does not become the lender merely by joining a program.

Mehmi Financial Group's current published position describes the company as a commercial financing brokerage and intermediary, with access to independent banks, factors, asset-based lenders and other commercial financing providers. Those providers make their own underwriting, pricing and funding decisions.

Independent Canadian originators who want a broader introduction to the partner model can first review Mehmi's Commercial Finance Broker Partner Program Canada.

What is asset-based lending?

Asset-based lending, commonly shortened to ABL, is commercial financing in which business assets provide a major part of the lender's collateral support.

BDC defines asset-based lending as a loan granted primarily on the value of assets offered as security.

In operating-business ABL, the most important assets are commonly:

• accounts receivable;
• inventory; and
• sometimes equipment or other business assets.

The U.S. Office of the Comptroller of the Currency describes accounts-receivable and inventory financing as a fundamental form of collateral-based commercial lending in which businesses use working assets to secure financing used to produce and market goods and services.

The easiest way for a broker to think about ABL is:

A conventional cash-flow lender asks how much debt the company can repay from earnings.

An asset-based lender also asks how much reliable collateral exists today and how much credit that collateral can support.

Those questions overlap, but they are not identical.

Mehmi's Asset-Based Lending in Canada for SMEs explains the borrower-side structure in more detail.

Which clients are good ABL candidates?

ABL can work well when a company is operationally viable but has large amounts of working capital tied up in assets.

Common examples include manufacturers, distributors, wholesalers, staffing companies, transportation businesses, food suppliers and other established B2B companies.

A useful broker signal is this:

Sales are happening, but cash is trapped between buying, producing, invoicing and collecting.

For example, a distributor may have:

• CAD $1.5 million of inventory;
• CAD $1 million of receivables;
• customers paying in 30 to 60 days; and
• suppliers requiring payment much earlier.

An unsecured term loan may provide temporary cash.

An ABL facility can potentially revolve with the operating assets.

Businesses dealing specifically with this cash cycle can also review Mehmi's Business Funding Between Customer Payments.

ABL may be less suitable for a business with few assets, unreliable accounting records or primarily consumer cash sales.

It is also not a substitute for profitability when the company has a fundamentally broken operating model.

How does an ABL borrowing base work?

The borrowing base is the central concept every ABL broker should understand.

An approved facility limit is not necessarily the amount the borrower can draw.

Actual availability is usually determined by applying the lender's agreed formula to eligible collateral.

BDC explains that borrowing capacity on collateral-backed operating facilities can change each month as eligible accounts receivable and inventory change. Its guidance also notes that the exact borrowing-base formula is determined by the financing agreement.

Suppose a lender approves a maximum CAD $1 million revolving facility.

That does not mean CAD $1 million is automatically available.

The lender might calculate availability from:

eligible receivables × agreed advance percentage

plus

eligible inventory × agreed advance percentage

minus

reserves, senior claims or other deductions.

Mehmi's Asset-Based Lending Canada: Borrowing Base Guide goes deeper into this calculation.

What makes a receivable eligible?

Not every invoice on an aging report has the same collateral value.

An ABL provider may review whether an invoice is:

• owed by an arm's-length customer;
• supported by completed delivery or performance;
• undisputed;
• within the permitted aging period;
• subject to offsets or credits;
• concentrated with one customer;
• denominated and payable in an acceptable jurisdiction;
• from a financially acceptable account debtor; and
• already pledged to another lender.

A company may therefore report CAD $2 million in total receivables but have substantially less eligible A/R.

Customer concentration can be particularly important.

Suppose 70% of receivables are owed by one customer.

That customer may have excellent credit, but the lender still faces a significant concentration problem. If one dispute or delayed payment occurs, much of the collateral can deteriorate at the same time.

Brokers packaging receivable-heavy files should review Mehmi's Accounts Receivable Financing in Canada, which covers aging, concentration and eligibility in more detail.

What makes inventory eligible?

Inventory is generally more complicated than receivables.

The lender needs to understand what it could realistically recover from the inventory if the borrower failed.

That can mean reviewing:

• raw materials;
• finished goods;
• work in process;
• inventory turnover;
• obsolete stock;
• seasonal merchandise;
• perishability;
• customer-specific goods;
• consigned inventory;
• location;
• ownership; and
• liquidation market.

CAD $1 million of inventory on the balance sheet does not automatically equal CAD $1 million of useful collateral.

Old, custom or unsaleable products may provide little borrowing availability.

Clean finished goods with predictable turnover can be considerably more useful.

Mehmi's Inventory Financing Canada: Approval and Rejection explains why ownership, turnover and liquidation characteristics matter.

What documents should an ABL broker collect?

ABL deals are usually reporting-heavy.

Do not send a lender only three bank statements and a one-line request for "$1 million working capital."

A lender-ready file can include:

• legal business and ownership information;
• requested facility size;
• detailed use of funds;
• recent financial statements;
• prior year-end statements;
• recent business bank statements;
• accounts-receivable aging;
• accounts-payable aging;
• customer concentration report;
• inventory report;
• inventory locations;
• existing debt schedule;
• existing lender agreements;
• current lien information;
• tax status;
• equipment schedule where relevant; and
• projections when the facility supports growth.

The broker should also understand why the company needs the facility.

"Working capital" is not enough.

A better explanation is:

"The company needs a revolving facility because it purchases inventory approximately 45 days before customer collection. Receivables increase with seasonal sales and normally convert to cash within 50 days."

That tells the lender how the facility is expected to revolve.

What is a borrowing-base certificate?

A borrowing-base certificate is a periodic calculation showing how much collateral currently supports the facility.

The borrower may have to report receivables, inventory, exclusions and other adjustments on an agreed schedule.

This matters because the collateral is constantly changing.

Yesterday's invoices are being collected.

New invoices are being created.

Inventory is being purchased and sold.

Some invoices become too old.

Some customers exceed concentration limits.

An ABL lender therefore cannot rely on a collateral snapshot prepared six months ago.

Mehmi's borrower-side Asset-Based Lending in Canada for SMEs notes that ABL facilities may involve borrowing-base reporting, asset monitoring, field exams and other controls.

For the broker, this creates an important qualification question:

Can the client actually produce accurate reporting every month—or more frequently if required?

A company with poor bookkeeping can struggle with ABL even if it owns significant assets.

What is a field exam?

A field exam is a deeper review of the collateral, accounting systems and operational controls behind an ABL transaction.

The lender or its specialist may test matters such as:

• whether receivables actually exist;
• invoice documentation;
• historical dilution;
• credit notes;
• customer concentrations;
• cash collections;
• inventory counts;
• inventory valuation;
• collateral controls; and
• financial-reporting reliability.

The purpose is not merely to verify that the balance-sheet number exists.

The lender wants to determine how much of that number can safely support credit.

Larger or more complicated ABL transactions may require more diligence than ordinary small-business loans.

Brokers should set that expectation before the borrower assumes the transaction will close from a bank-statement review alone.

What is dilution in ABL?

Dilution is the amount by which invoiced receivables do not ultimately convert into cash at their full recorded value.

Examples can include:

• credits;
• returns;
• rebates;
• billing errors;
• discounts;
• warranty deductions; and
• disputed charges.

Suppose a manufacturer records CAD $1 million of invoices but historically collects only CAD $940,000 after credits and adjustments.

The lender needs to understand that difference.

High or unpredictable dilution can reduce borrowing availability because the headline accounts-receivable balance overstates the cash likely to be collected.

This is one reason clean invoicing and credit-note reporting matter so much in ABL.

ABL vs factoring: what should brokers know?

They overlap, but they are not the same.

Factoring commonly involves selling or assigning qualifying receivables and receiving an advance before the account debtor pays.

ABL more commonly involves a secured revolving facility supported by a pool of collateral.

The ABL lender may lend against both receivables and inventory and can require ongoing borrowing-base reporting.

A factor may be more focused on individual invoices or account debtors.

Neither structure is automatically better.

A business with straightforward B2B receivables but little additional collateral may find factoring simpler.

A larger distributor with meaningful receivables and inventory may benefit from a broader ABL structure.

Mehmi's Invoice Factoring in Canada: Costs & Approval explains factoring separately so brokers do not incorrectly describe both products as the same type of loan.

ABL vs a business line of credit

Both can revolve.

The difference is often how heavily availability is tied to monitored collateral.

A conventional operating line can rely on general company credit quality with receivables and inventory supporting security.

An ABL facility is typically much more formula-driven.

Availability can rise or fall with the collateral.

The lender may also exercise tighter control over reporting and collections.

Canadian brokers can compare the structures with Mehmi's Business Line of Credit Canada: Rates & Limits and Working Capital Loan vs Line of Credit Canada.

The right question is not:

"Which has the lower rate?"

It is:

"Which facility can reliably support the company's actual working-capital cycle?"

Can equipment be included in an ABL facility?

Potentially.

A lender may consider qualifying machinery, trucks or other equipment as additional collateral.

But equipment behaves differently from receivables.

Receivables can replenish continuously as customers are invoiced.

A machine normally depreciates and does not revolve.

That is why equipment is sometimes financed separately.

For example, a manufacturer might use an A/R and inventory borrowing-base facility for operating liquidity while financing its CNC equipment through a separate equipment loan or lease.

An equipment-heavy business wanting liquidity from assets it already owns can also compare a dedicated refinance or Sale-Leaseback Financing in Canada.

Separating long-life equipment from short-term working assets can produce a cleaner capital structure.

Illustrative ABL borrowing-base example

Consider an established U.S. distributor seeking a revolving working-capital facility.

Assume the lender evaluates the following collateral.

Total accounts receivable: USD $800,000

After excluding aged, disputed and concentrated balances:

Eligible accounts receivable: USD $600,000

Assume, purely for illustration, that the facility advances 80% of eligible A/R:

$600,000 × 80% = $480,000

Now consider inventory.

Total inventory: USD $500,000

After removing slow-moving and ineligible inventory:

Eligible inventory: USD $300,000

Assume an illustrative 40% inventory advance:

$300,000 × 40% = $120,000

That produces a preliminary borrowing base of:

$480,000 + $120,000 = $600,000

Assume the lender then establishes a USD $50,000 reserve.

Current availability becomes:

USD $550,000.

Now assume:

Actual amount drawn: USD $400,000
Illustrative annual interest rate: 11.50%
Facility term: 12 months
Payment frequency: Monthly interest payments
Principal structure: Revolving, with USD $400,000 assumed outstanding throughout the example
Illustrative facility fee: 1% of a USD $600,000 commitment, or USD $6,000

At a constant USD $400,000 balance, monthly interest would be approximately:

USD $3,833.33.

Twelve months of interest would total approximately:

USD $46,000.

If the entire USD $400,000 principal were then repaid at the end of the illustrative 12-month period, total principal, interest and the assumed facility fee would equal approximately:

USD $452,000.

This simplified example excludes legal expenses, UCC searches and filings, field-exam costs, appraisals, monitoring charges, unused-line fees, lockbox costs, default charges, early-termination costs and other possible expenses.

It assumes the USD $400,000 balance remains unchanged for twelve months. A real revolving ABL facility normally changes as the company draws, collects receivables and repays the line.

The 80% receivables advance, 40% inventory advance, reserve, 11.50% rate and 1% facility fee are illustrative assumptions only. They are not Mehmi Financial Group terms, market promises or approval guidelines.

Because ABL balances change, the actual total financing cost cannot be known without the borrower's actual draw and repayment history.

How do U.S. liens affect an ABL deal?

Lien priority is critical.

A lender advancing against receivables and inventory needs to understand which creditor already has rights in those assets.

In the United States, UCC Article 9 provides the general statutory framework for transactions secured by personal property, and states maintain filing systems used to publicly disclose security interests through financing statements.

Suppose a broker finds a manufacturer with USD $2 million of receivables.

That sounds like a strong ABL opportunity.

But if an existing bank already holds a blanket security interest covering substantially all assets, the new lender cannot simply ignore it.

Possible structures could require:

• repayment of the existing lender;
• termination or release;
• subordination;
• an intercreditor agreement; or
• another acceptable priority arrangement.

The broker should identify existing secured debt early.

Do not wait for legal diligence at closing to discover that the collateral is already pledged.

How is Canadian ABL security different?

Do not use U.S. UCC terminology as though it applies automatically in Canada.

Canadian personal-property security is generally handled under provincial and territorial regimes.

Ontario's Personal Property Security Act, for example, expressly addresses accounts, inventory, equipment and financing statements.

Quebec operates differently through the civil-law system and the Registre des droits personnels et réels mobiliers (RDPRM). The Government of Quebec describes the RDPRM as a registry that can be used to determine whether certain property has been given as security or is subject to debt.

The broker's practical responsibility is to identify:

• borrower province;
• collateral location;
• existing secured lenders; and
• potential priority issues.

The lender and its legal professionals can then determine the actual security documents, searches, registrations and priority arrangements required.

What should a broker check before sending an ABL file?

A useful first-pass ABL screen should answer five questions.

Is there enough real collateral?

Do not start with gross assets.

Estimate what might actually be eligible.

Is the reporting reliable?

Can the business provide an accurate A/R aging, A/P aging, inventory records and financial statements?

Are the assets already pledged?

Identify banks, factors, equipment lenders and other secured creditors.

Does the business have a legitimate working-capital cycle?

ABL works best when assets convert to cash.

Receivables collect.

Inventory sells.

The facility revolves.

Is the company viable apart from the collateral?

ABL provides collateral support.

It does not make an unprofitable business healthy.

The business still needs adequate margins, management and a reasonable plan for continuing operations.

What types of ABL files should a broker avoid?

Some files should not be forced into an asset-based structure.

Warning signs include:

• receivables that cannot be verified;
• invoices created before work is performed;
• significant customer disputes;
• heavy related-party receivables;
• materially inaccurate inventory records;
• goods the company does not actually own;
• undisclosed liens;
• suspected invoice manipulation;
• persistent tax problems with no plan;
• severe operating losses; or
• a borrower asking for maximum cash without a credible use.

The collateral needs to be real.

A lender cannot solve a fraudulent invoice or nonexistent inventory problem by changing the advance rate.

When should you co-broker an ABL deal?

ABL can become technical quickly.

An independent broker may understand the borrower but lack direct relationships with asset-based lenders or experience handling collateral audits and intercreditor issues.

That can be a reasonable reason to co-broker.

It may also make sense when:

• the facility is unusually large;
• inventory is highly specialized;
• several secured creditors exist;
• the borrower operates across jurisdictions;
• there is significant customer concentration;
• equipment needs to be carved out separately; or
• the broker's normal lender panel focuses on unsecured working capital.

Canadian brokers with viable files outside their normal lender access can review Mehmi's Broker Co-Brokering Program for Declined Deals.

The goal should be better structuring and lender fit, not simply adding another intermediary.

How does ABL broker compensation work?

There is no universal ABL broker commission.

The economics can depend on the financing provider, facility size, structure, work performed, broker agreement and applicable law.

Before submitting a deal, understand:

• what event earns compensation;
• whether compensation is paid at closing;
• whether renewals or increases create additional compensation;
• whether there are clawbacks;
• whether the broker can charge the borrower;
• who owns the future relationship; and
• what happens if the financing provider restructures the facility later.

Mehmi's current disclaimer states that it may receive commissions, referral compensation or brokerage compensation from financing providers and that arrangements vary by provider and product. It also states that any client-paid brokerage fee must be separately disclosed and charged only where lawful.

Do not present an unverified percentage as a standard ABL commission.

Can an ABL broker operate throughout the United States?

Not automatically.

Commercial-financing brokerage requirements can differ by state, product, borrower location and compensation arrangement.

Mehmi's current published U.S. policy says its brokerage availability is transaction-specific. Unless Mehmi has confirmed applicable authorization or an exemption, it currently does not accept general commercial loan-broker applications involving borrowers principally located in California, Illinois, Missouri, Nebraska, North Carolina, North Dakota or Vermont. Additional product-specific restrictions may apply.

Those are Mehmi's current operational restrictions.

They are not a statement that asset-based lending itself is prohibited in those states.

Independent brokers must determine the rules that apply to their own business and transaction rather than assuming a partner relationship creates nationwide authority.

Frequently Asked Questions

What does an asset-based lending broker do?

An ABL broker helps identify whether business assets can support commercial financing, gathers the collateral and financial information, packages the request and works with potential financing providers.

The asset-based lender makes the final credit and collateral decision.

What assets can support an ABL facility?

Accounts receivable and inventory are common working assets.

Equipment may also provide collateral support depending on the lender and structure.

Real estate is generally treated under different secured-financing structures and should not automatically be grouped with working-asset ABL.

Is ABL the same as factoring?

No.

Factoring usually focuses specifically on receivables and may involve their sale or assignment.

ABL is typically a secured facility against an eligible pool of assets and can include both receivables and inventory.

Does ABL require good personal credit?

Requirements vary by lender and transaction.

ABL places significant emphasis on collateral quality and controls, but that does not mean the lender ignores the company, owners, credit history or repayment risks.

Can a company qualify if it is not profitable?

Potentially, depending on the reason for weak profitability, collateral quality and the business's overall viability.

A growing business reinvesting in operations can present differently from one suffering continuing operating losses with no credible path to improvement.

How often does an ABL borrower report collateral?

It depends on the facility.

A lender may require borrowing-base certificates, receivable aging, inventory reporting and other information monthly, weekly or at another agreed frequency.

Higher-risk or rapidly changing facilities can require more monitoring.

Can a broker submit equipment as part of the ABL collateral?

Potentially.

But equipment may be cleaner to finance separately through an equipment refinance, loan or lease.

The appropriate structure depends on the asset and capital requirement.

What is the biggest mistake new ABL brokers make?

Focusing on the company's gross A/R and inventory numbers rather than eligible collateral.

A CAD $3 million balance sheet can support far less borrowing once aged receivables, concentration, obsolete inventory, prior liens and lender reserves are taken into account.

Can Mehmi Financial Group directly approve an ABL facility?

No.

Mehmi Financial Group is a commercial financing brokerage and intermediary. Its current published materials specifically list asset-based financing among the products it may help businesses pursue through independent providers. Those providers establish their own credit, collateral, advance-rate, pricing and documentation requirements.

Discuss an asset-based lending broker opportunity

An ABL opportunity should arrive with more than a requested dollar amount.

Before discussing placement, be prepared to provide:

• requested facility amount;
• whether the borrower is in the United States or Canada;
• applicable state or province;
• specific use of funds;
• recent financial statements;
• accounts-receivable aging;
• accounts-payable aging;
• inventory report where applicable;
• existing secured debt and liens;
• equipment schedule if relevant; and
• required timing.

Independent brokers can also review Mehmi's Commercial Finance Broker Partner Program Canada for the broader partner workflow.

Call Mehmi Financial Group at 833-863-4644 or use the verified Mehmi Financial Group contact page to discuss the transaction and jurisdictional fit. The current contact page confirms the toll-free number and notes that financing decisions and timelines depend on lender review and complete documentation.

Approval, borrowing-base availability, advance rates, pricing, reserves, collateral requirements, covenants, reporting frequency and funding remain subject to the applicable independent asset-based lender.

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