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BUSINESS FINANCING · CANADA & USA
Asset-Based Lending
Access business financing supported by eligible receivables, inventory or equipment as your operating needs change.
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What is asset-based lending?
Asset-based lending uses eligible business assets to support a financing facility. A revolving facility may use a borrowing base: a calculation of permitted borrowing against accepted collateral, after exclusions and reserves. Availability can change as invoices are collected, stock ages or asset values change.
Illustrative example: A distributor has cash tied up in stock and unpaid invoices. An asset-based facility may support its operating cycle, but borrowing capacity depends on eligible assets—not total balance-sheet value. Updated inventory and receivables records help explain what is available.
What can you finance?
Receivables-backed liquidity
Review eligible customer accounts, aging, concentrations, disputes and collection history.
Inventory-backed availability
Assess saleability, aging, location and valuation rather than relying on accounting cost alone.
Growth or transition
Connect collateral availability with the operating plan, existing commitments and expected cash conversion.
How a borrowing base affects available funding
Eligible assets are the starting point
Asset-based lending can link borrowing availability to eligible receivables, inventory or other approved business assets. Not every asset on the balance sheet is necessarily eligible. Age, condition, customer concentration, existing claims and other criteria may affect the calculation. Ask which asset classes support the facility and how eligibility is assessed before using a headline asset value to estimate available funding.
Illustrative example: a changing borrowing base
Suppose a business has $200,000 of receivables, but only $150,000 qualifies under an illustrative agreement. Applying an assumed 70% advance factor produces $105,000 before reserves and existing drawings. With $60,000 already drawn and no other adjustments, illustrative headroom is $45,000. These invented terms explain the arithmetic only. The actual agreement may use different criteria, factors, reserves and limits.
Availability can fall as well as rise
If invoices age beyond eligibility rules or inventory becomes less saleable, the borrowing base may shrink even without a new draw. The agreement may then require action to address an excess balance. Model this possibility alongside your cash forecast. A growing sales ledger does not automatically create more usable credit if the growth is concentrated in overdue or otherwise ineligible accounts.
Who can qualify for asset-based lending?
Businesses with identifiable assets, reliable financial and collateral records, and the ability to meet ongoing reporting requirements may be candidates. Asset eligibility, valuation, customer concentration and existing security are central considerations.
Available options depend on your business location in Canada or the USA. Include the province or state, transaction currency and any cross-border activity in your request.
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The process, step by step.
Review the request
Provide the requested documents and clarify the costs, structure and conditions of any proposal.
Complete agreed conditions
If approved and you choose to proceed, complete the agreement and required conditions before funds are disbursed.
What should you compare before proceeding?
Borrowing-base rules
Understand exclusions, advance calculations and reserves that can change availability.
Reporting & monitoring
Confirm reporting frequency, field reviews, valuation costs and administrative responsibilities.
Cash control & security
Review collection arrangements, priority, covenants and the effect of a collateral shortfall.
Prepare for a facility that requires current information
Receivables and inventory reporting
Have an accurate receivables aging, customer list and inventory records where relevant. Explain disputed invoices, returns, slow-moving stock and concentrations. The information should reconcile with accounting records so the same asset is not described differently in separate reports. A borrowing-base facility depends on reliable updates; consider whether your team and systems can provide them at the required frequency.
Asset ownership and existing security
Identify which entity owns the assets and disclose current loans, leases or other claims against them. A proposed facility may need coordination with existing finance arrangements. Assets held by a related company or located across a border can require additional explanation. Provide the business’s province or state, operating currency and asset locations rather than assuming geographic coverage makes every asset eligible.
Operations still need to support repayment
Asset value alone does not explain the whole business. Provide financial records, bank activity and a realistic operating forecast. Show how customers pay, how inventory turns into sales and which costs arise before collection. This helps distinguish a timing issue from a persistent operating shortfall. A facility can support the cash cycle, but it cannot guarantee that inventory sells or customers pay.
Evaluate reporting costs and operating flexibility
Look beyond the interest rate
Ask about setup, field examination, valuation, monitoring and other charges that may apply. Compare the expected cost at realistic usage, not only at the maximum commitment. A facility with a larger stated limit may provide less usable funding after eligibility rules and reserves. Understanding both availability and cost is essential when deciding whether the structure is useful for the business.
Review controls and response requirements
Clarify how collections are handled, when availability is updated and what happens if a report is late or assets become ineligible. Ask about restrictions on selling assets, taking additional debt or changing the business structure. These terms can affect daily administration. Assign responsibility internally so reporting and collections procedures are understood before relying on the facility for payroll or supplier payments.
Compare the alternatives by operating pattern
A simpler term loan may suit a defined expenditure; factoring may address particular eligible invoices. Asset-based lending may be more relevant where a changing pool of assets supports an ongoing financing need. The decision should account for reporting capacity and the stability of the asset pool. Use the comparison below to explore the mechanics, then assess the actual proposed terms rather than the product name alone.
How should you prepare for a seasonal change in assets?
Forecast the asset pool as well as the cash balance. Inventory may fall after a busy season while receivables rise, then receivables may reduce as customers pay. The facility’s eligibility rules determine whether these changes maintain or reduce available borrowing. Compare expected availability with the amount drawn at each stage, and identify any period when the balance could exceed support from eligible assets. Ask how the agreement handles that situation. This exercise helps avoid treating a strong borrowing base at one point in the year as a permanent source of the same amount of funding throughout the operating cycle.
Asset-Based Lending compared with other options
Compare
Asset-Based Lending
Secured Business Loans
Invoice & Freight Factoring
Primary purpose
Liquidity supported by eligible assets
Business borrowing supported by assets
Eligible unpaid customer invoices
Repayment / cash flow
Availability and repayment governed by facility terms
Contractual loan payments; collateral supports obligations
Collections, reserves and recourse under the agreement
Main review focus
Borrowing base, collateral and reporting
Repayment capacity, asset value and priority
Invoice validity and customer payment profile
Costs to compare
Net proceeds, interest or financing charges, fees and total repayment
Net proceeds, interest or financing charges, fees and total repayment
Advance, reserve, fees and collection-related charges
General comparison only. Availability, security and final conditions vary by business, product and location. On smaller screens, scroll the comparison horizontally.
Explore your industry
Find guidance for your sector and how your business operates.
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Explore industry →Frequently asked questions
Does every asset count toward availability?
No. Eligibility rules, valuations, reserves and existing security determine which assets are included.
Can the available amount change?
Yes. Receivable collections, inventory changes, exclusions and other conditions may affect the borrowing base.
Is ABL the same as invoice factoring?
No. ABL is lending supported by eligible collateral; factoring involves the sale of receivables. Compare collection responsibilities and contract terms.
What records are needed after an asset-based facility is set up?
Reporting can include receivables aging, inventory reports and borrowing-base certificates. Reviews or appraisals may also apply. Confirm frequency, costs and how overdue invoices, customer concentration or slow-moving stock could reduce availability.
Is this available in Canada and the USA?
Mehmi accepts financing enquiries from businesses in Canada and the United States. Include your province or state, business activity and transaction currency. Available structures and requirements vary by location and request.
What should I compare before accepting an offer?
Compare the total amount payable, upfront cash, payment frequency, security, personal guarantees and early-settlement terms. Check what happens at the end of the agreement and whether the payments remain manageable in a slower month.
Financing guides for your next step.
CANADIAN FINANCING GUIDE
Asset-Based Lending in Canada for SMEs
Explore the considerations, documents and contract questions for this financing topic.
Read article →CANADIAN FINANCING GUIDE
Asset-Based Lending Canada: Borrowing Base Guide
Explore the considerations, documents and contract questions for this financing topic.
Read article →Tell us what your business needs.
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Apply for financingFinancing is subject to application review and approval. Availability, costs, terms and documentation vary by business, product and location. This page provides general information and is not a financing offer.