Quick answer: The lender provides a line of credit or loan based on the value of these assets, typically advancing 70–90% of receivables and 40–60% of inventory/equipment value .
Asset-Based Lending (ABL) is a type of financing where a business borrows money using its assets as collateral. Instead of relying solely on credit score or cash flow, lenders look at the value of assets like:
- Accounts receivable (invoices owed to you)
- Inventory
- Equipment & machinery
- Vehicles or trucks
- Real estate (sometimes, in higher-value deals)
How It Works Step by Step
- Asset Assessment
The lender reviews your assets (invoices, inventory, trucks, machinery). They determine how much they’re worth in liquidation or resale. - Advance Rate Set
You receive financing as a percentage of that value:
- Receivables: Up to 90%
- Inventory: 40–60%
- Equipment: Case-by-case, often 50–70% of appraised value
- Receivables: Up to 90%
- Credit Facility Created
A revolving line of credit or term loan is established. You can borrow against the assets, repay, and borrow again (like a business line of credit). - Ongoing Monitoring
The lender requires updated reports (accounts receivable aging, inventory levels, etc.) to adjust your borrowing capacity. - Repayment
As invoices are collected or inventory sold, funds go back to repay the ABL balance, keeping the facility in good standing.
Example: Transportation Company in Ontario
A trucking firm with $800,000 in unpaid invoices needed working capital for fuel and payroll. Instead of waiting 60 days for customers to pay, they used ABL.
- Lender advanced 85% of receivables = $680,000.
- The company drew funds immediately, paid expenses, and continued operations.
- Once clients paid invoices, the loan was repaid automatically.
Result: The business avoided cash flow bottlenecks and could bid on larger contracts.
Benefits of Asset-Based Lending
- Access to Larger Credit Limits: Higher than unsecured loans because assets back the financing.
- Flexible Structure: Works like a revolving facility; you borrow as receivables and inventory grow.
- Faster Growth: Convert tied-up assets into working capital.
- Better Than Equity: Keep full ownership instead of selling shares for capital.
Who Is It Best For?
- Companies with slow-paying customers but strong sales.
- Seasonal businesses (construction, farming, logistics).
- Firms that are asset-rich but cash-poor.
- Businesses needing $250,000+ credit facilities that banks won’t approve.
Alternatives If ABL Isn’t Right
- Invoice Factoring: Sell invoices for immediate cash.
- Working Capital Loan: Quick lump sum without asset monitoring.
- Line of Credit: Flexible funds without full asset audits.
FAQ: Asset-Based Lending
1. How much can I borrow with ABL?
Usually 70–90% of receivables and 40–60% of inventory or equipment value.
2. Is it only for large companies?
No. While popular with mid-market firms, smaller SMEs also use ABL for flexibility.
3. Do I need good credit?
Not necessarily — asset strength matters more than credit score.
4. How is this different from factoring?
Factoring sells invoices outright; ABL uses them as collateral in a revolving facility.
5. How fast is approval?
Approval and funding timelines vary by lender, application completeness, and required conditions.
6. Can I still use my assets?
Yes — you continue operating normally. Assets just secure the loan.
Final Thoughts
Asset-Based Lending turns your receivables, inventory, or equipment into cash you can use today. For Canadian businesses that are growing but struggling with cash flow timing, ABL is often the bridge between opportunity and execution.
Explore how much you qualify for by speaking with Mehmi’s credit analysts or running numbers in our financing calculator.
Are you looking for a truck? Check our used inventory and finance it through ABL or other flexible structures.
Source perspective
BDC’s equipment-financing guide emphasizes the complete financing structure when comparing offers.
“Don’t focus only on interest rates”
For the equipment decision discussed here, compare the amount financed, payment schedule, collateral and remaining obligations alongside the quoted rate.