Asset Based Lending: The Complete Guide for UK Businesses

Asset based lending (ABL) is a single revolving credit facility secured on a business's assets, typically receivables, stock, plant and machinery and real estate, where the amount you can draw moves in line with the value of those assets. It suits established businesses with a strong balance sheet and working capital needs of £2m or more, especially in manufacturing, wholesale and distribution, recruitment, retail and logistics. Growth Business Finance (GBF) arranges ABL facilities from £2m to £100m.

Key facts

• Size: GBF arranges ABL facilities from £2m to £100m.
• Structure: one revolving facility across up to four asset classes.
• Receivables: up to 90% of eligible invoices, and 95% to 100% in some sectors such as recruitment and retail.
• Stock: up to 90% of net orderly liquidation value (NOLV).
• Plant and machinery: up to 85% of NOLV.
• Real estate: up to 80%.
• Pricing and term: from 2% over Bank Rate, which is currently 3.75%, on 3 to 5 year terms.

How asset based lending works

An ABL facility is built from a borrowing base. The lender values each eligible asset class, applies an advance rate to each, and adds them together. The total is the amount you can draw, up to the facility limit.

The four asset classes

1. Receivables. Your sales ledger is usually the engine of the facility. GBF arranges receivables funding at up to 90% of eligible invoices, and 95% to 100% in some sectors such as recruitment and retail.
2. Stock. Raw materials, work in progress and finished goods are valued on a net orderly liquidation value basis. GBF arranges stock funding at up to 90% of NOLV.
3. Plant and machinery. Equipment is independently valued, with funding at up to 85% of NOLV.
4. Real estate. Property owned by the business can sit inside the same facility at up to 80%.

Why it is different from a bank loan

A conventional term loan is sized mainly on profit and cash flow, and its limit stays fixed. An ABL facility is sized mainly on assets, and the availability moves as your debtor book and stock rise and fall. As sales grow, so does headroom. That makes ABL well suited to growing and seasonal businesses, and to businesses whose balance sheet is stronger than their recent profits.

Reporting and monitoring

Because availability depends on the assets, the lender needs regular information. Expect frequent sales ledger reporting, periodic stock reports and field examinations or audits. Good systems and clean data make the facility cheaper to run and easier to manage.

What ABL is not

Asset finance, trade finance and supply chain finance are related facilities, but they are not ABL. They can sit alongside an ABL facility, and GBF arranges them too, but they work differently: asset finance funds specific equipment, while trade and supply chain finance fund particular purchases or supplier payments.

Who asset based lending suits

ABL works best where there is a meaningful asset base and a clear working capital need:

• Manufacturers with receivables, stock and plant. See our page on ABL for manufacturing.
• Wholesalers and distributors carrying significant stock and debtors. See ABL for wholesale and distribution.
• Recruitment businesses, where receivables can attract advance rates of 95% to 100%. See ABL for recruitment.
• Retail and consumer brands funding seasonal stock builds
• Transport and logistics operators with fleets and long customer payment terms
• Acquirers, MBO and MBI teams using the target's assets to fund part of the purchase price alongside other debt

ABL is less suitable for asset-light businesses with few receivables or stock, where a cash flow term loan or recurring revenue finance may fit better.

Costs and terms

GBF arranges ABL from 2% over Bank Rate, on 3 to 5 year terms, priced deal by deal. Interest is charged on the amount drawn, not the full limit.

The total cost of an ABL facility usually includes:

• Margin over Bank Rate on funds drawn
• Arrangement fee on the facility
• Service or management fees for the receivables element
• Valuation and audit costs for stock, plant and real estate, and periodic field examinations
• Non-utilisation or minimum fees in some structures

Always compare the full annual cost based on your expected usage, rather than the margin alone.

Eligibility and what lenders look at

ABL lenders look first at the quality of the assets, and then at the business:

• Receivables quality: customer concentration, credit quality, payment terms, disputes, credit notes and contra accounts
• Stock quality: how saleable it is, how quickly it turns, and whether it is finished goods, raw materials or work in progress
• Plant and machinery: age, condition, specialism and resale market
• Real estate: value, use and condition
• Financial performance: trading trends, cash flow forecasts and existing debt
• Systems and management: the quality of financial reporting and the experience of the finance team

ABL in acquisitions, refinancing and growth

ABL is often used for more than day-to-day working capital:

• Acquisitions and buy-and-build. The target's receivables, stock and plant can support part of the purchase price, with term debt or equity covering the balance. For a buyer, an ABL facility that grows with the combined group can be more flexible than a fixed loan.
• MBOs and MBIs. Management teams can use the business's own assets to fund part of a buyout, reducing the equity they need to find.
• Refinancing. Businesses that have outgrown an overdraft or invoice finance line, or whose bank facilities no longer fit, can move to one larger ABL facility that brings the asset classes together.
• Rapid growth. Because availability rises with sales and stock, ABL can keep pace with growth where a fixed limit cannot.
• Turnaround. Where profits have dipped but the balance sheet is sound, ABL can provide headroom while a recovery plan is delivered.

In these situations ABL usually sits alongside other debt, so the security and intercreditor arrangements need to be agreed early in the process.

Documents you will need

• Three years of filed accounts and current management accounts
• Aged debtor and aged creditor reports
• Customer and supplier listings, with any concentrations explained
• Stock reports by category and location
• Fixed asset register for plant and machinery
• Property details where real estate is included
• Cash flow forecast and a summary of the purpose of the facility
• A schedule of existing borrowing and security

The lender will typically carry out a pre-lend audit of receivables and stock, and instruct independent valuations of stock, plant and property.

ABL compared with the nearest alternatives

Common mistakes to avoid

• Assuming the headline advance rate equals availability. Ineligible debtors, concentration limits and reserves reduce the borrowing base. Model it properly before you commit.
• Poor data. Weak ledger and stock reporting leads to lower advance rates and more audit findings.
• Ignoring the full cost. Service fees, audits and minimum fees can matter as much as the margin.
• Choosing ABL when a cash flow loan is cheaper. Profitable, asset-light businesses may do better with a term loan or RCF.
• Not planning for growth. Set the facility limit with headroom so you are not renegotiating within months.
• Overlooking intercreditor issues. Where ABL sits alongside term debt, the security arrangements need to be agreed early.

How a broker and debt adviser like GBF helps

GBF is a commercial finance broker and debt adviser, not a lender. ABL is a structured product, and outcomes vary widely depending on how the deal is presented and which lenders see it.

1. Initial review. We review your accounts, ledgers, stock and assets to estimate a realistic borrowing base.
2. Structuring. We decide which asset classes to include, the facility size, and how ABL should sit with any term debt, asset finance or trade finance.
3. Credit paper. We prepare a credit paper covering the business, the assets and the forecasts.
4. Lender selection. We approach the lenders best suited to the deal from our whole-of-market panel of 650+ lenders, including clearing banks and specialist ABL lenders.
5. Negotiation. We compare terms on advance rates, eligibility, reserves, fees and covenants.
6. Completion. We manage audits, valuations, legal documentation and conditions precedent through to the facility going live.

If you already have a facility, our facility health check helps you see whether it is still the right fit. Our asset based lending page explains the product in more detail.

FAQs

What is the minimum size for an ABL facility?

GBF arranges ABL facilities from £2m to £100m. Smaller receivables-only needs may suit invoice finance instead.

How much can I borrow against my assets?

It depends on the quality and value of the assets. GBF arranges receivables at up to 90% (95% to 100% in some sectors), stock at up to 90% of NOLV, plant and machinery at up to 85% of NOLV and real estate at up to 80%.

What does asset based lending cost?

GBF arranges ABL from 2% over Bank Rate, on 3 to 5 year terms, priced deal by deal. You also pay fees for arrangement, servicing and audits, so compare the full annual cost.

Is ABL the same as invoice finance?

No. Invoice finance funds receivables only. ABL can combine receivables with stock, plant and machinery and real estate in one revolving facility.

Can ABL fund an acquisition or MBO?

Yes. ABL is often used to fund part of an acquisition or MBO, using the target's assets, alongside term debt or equity. GBF's debt advisory service covers these transactions end to end.

Will my customers know I have an ABL facility?

Many ABL facilities use confidential receivables funding, so customers continue to pay you as normal. This depends on the structure and the lender.

Can a loss-making business use ABL?

Sometimes. Because ABL focuses on assets, it can support businesses through a turnaround or a weaker year, provided the assets are good quality and there is a credible plan.

Next step

If your business needs a working capital facility from £2m, start with check what you could raise for an initial view, or call Growth Business Finance on 020 3432 2341. Finance is subject to status and lender approval.

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF