Asset-based lending (ABL) is any form of lending secured by an asset.
Typicially, four types of asset classes are secured under ABL:
– accounts receivable
– real estate
The amount a firm can borrow depends on the appraised value of the selected assets, rather than on the overall creditworthiness of the firm, taking into account
the ease to sell off the assets should the borrower be unable to generate cash to repay the loan. The amount of credit extended is linked to the liquidation value
of the assets, which is estimated and monitored on the basis of hard data. Thus, monitoring and asset evaluation methodologies are of the utmost importance
for this type of lending, which explains the historical use of ‘tangible’ assets to secure loans and, on the other hand, the limited exploitation of intangibles, such as
trademarks, patents and copyright.
Things to remember:
In light of the above risks, particularly of the expected asset value dilution and losses, asset-based lenders typically lend at a discount to the actual value of the
EU-wide application: It demands a sophisticated and efficient legal system.
Type (size) of SME business transfer: Low-risk profiles, financially small business transfers.