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Asset based lending.

Asset based lending (ABL) is a single facility that lets a business borrow against multiple categories of asset at once: receivables, stock, plant and machinery, and property. The lender combines them into one borrowing base and advances against the lot. It sits above invoice finance in scale and complexity, and is the workhorse of UK mid-market acquisitions, MBOs and refinancings.

The basics

What is asset based lending?

Where invoice finance funds the sales ledger, ABL funds the whole working-capital and asset base of a business in one structure. A typical ABL facility might look like:

• 85% advance on receivables.
• 50–60% advance on raw materials and finished goods.
• 60–70% loan-to-value on plant and machinery.
• 60–70% on commercial property.

Add those up and a £15m turnover manufacturer with £3m of receivables, £2m of stock, £4m of machinery, and a £3m freehold could see total availability in the region of £6m–£8m — usually significantly more than any single-product facility would produce.

ABL is most often used to finance acquisitions, management buyouts, restructurings, or step-changes in working capital that exceed what invoice finance alone can deliver.

Fit

When it works well.

ABL works when the business is asset-rich and the funding requirement is large enough to justify the complexity. Specifically:

• Acquisitions and MBOs — ABL is the workhorse of mid-market deal financing in the UK. It can fund a meaningful portion of the purchase price using the target's own balance sheet.
• Restructuring or refinancing — consolidating multiple facilities (overdraft, invoice finance, asset finance, mortgages) into a single, larger structure.
• Step-change growth — when a single contract win or expansion requires more working capital than a sales-ledger-only facility can support.
• Distressed or underperforming businesses — ABL lenders are generally more comfortable with weaker P&Ls than cash-flow lenders, because they're lending against assets, not earnings.
• Asset-heavy sectors — manufacturing, distribution, engineering, food and drink, recycling, automotive.

The right shape: £10m–£200m turnover, with a meaningful and verifiable asset base, and a transaction or strategic event large enough to warrant a multi-week setup.

The honest part

When it's a bad idea.

ABL is the wrong tool more often than borrowers realise. Avoid it when:

• You're asset-light. Services, software, consultancy, and most B2C digital businesses simply don't have the collateral to make ABL economic.
• Your funding requirement is small. Setup costs and ongoing monitoring make ABL uneconomic below roughly £2m of facility.
• You don't need the full structure. If invoice finance plus asset finance gives you what you need, the simpler combination is usually cheaper and less intrusive.
• You can't tolerate the operating overhead. ABL involves monthly borrowing-base certificates, quarterly audits, ongoing covenant reporting, and regular conversations with the lender about your numbers. Finance teams without the bandwidth struggle.
• Your business is volatile in ways that affect the borrowing base. Stock obsolescence, debtor concentration shifts, or asset value swings can suddenly reduce availability — often at the worst possible moment.
• You're using it to mask underlying performance issues. ABL lenders are sharper than they're given credit for. Once they see covenants slipping, they tighten, not loosen.

The other reality: ABL relationships are intense. The lender will know your business almost as well as you do. That works for some management teams and chafes badly with others.

Cost

Real costs.

ABL pricing has two layers. The first is the cost of the receivables facility, which usually works like invoice discounting or factoring. The second is the cost of the additional asset tranches — stock, plant, machinery and property.

Component	Typical structure
Receivables service fee	0.2%–1.5% of assigned sales (lower at scale, higher for service-heavy arrangements)
Receivables discount charge	Margin over base rate or SONIA on funds drawn
Stock / plant / property margin	Higher than the receivables line — less liquid, more expensive to monitor
Arrangement fee	Percentage of total facility or committed limit
Valuation fees	Stock, plant, machinery and property — fixed costs per asset class
Monitoring & audit fees	Field exams, borrowing-base reviews, periodic collateral testing
Legal fees	Often material — multiple companies, property assets, existing lenders, cross-border
Non-utilisation fees	Sometimes charged on committed but undrawn availability
Exit / amendment fees	Not always present — important to check

The important point: ABL is not priced like one simple loan. The debtor book is usually charged partly on sales volume and partly on utilisation. The other assets are priced more like secured term or revolving debt. The headline margin is rarely the real cost — once audit, valuation, legal, minimum fees and reserves are included, the all-in cost can be materially higher.

Operational reality

Speed, complexity, certainty, flexibility.

Speed

Slow. Expect 8–16 weeks from initial mandate to drawdown for a new facility. Acquisition-driven deals can be compressed to 6–8 weeks but involve serious work from the borrower's team. Once live, drawings against the borrowing base are next-day.

Complexity

High, both at setup and on an ongoing basis. Expect detailed due diligence on each asset category (independent valuations of plant, stock, and property), legal documentation of 100+ pages, debentures, fixed and floating charges, and personal guarantees from directors or shareholders. Ongoing, the borrowing base is recalculated monthly and audited quarterly.

Certainty

Strong once in place, but qualified. The headline facility is rarely the available facility. Real availability depends on monthly borrowing-base reports, debtor concentration, stock ageing, and covenant compliance. Lenders can and do impose reserves, exclude assets, or step in if performance deteriorates.

Flexibility

Mixed. The facility scales with your asset base, which is helpful for growth. But ABL facilities are heavily covenanted and any material change to the business — disposals, acquisitions, dividend payments, capex above thresholds — usually requires lender consent. You're not running the business alone any more.

In the market

Who actually uses it.

ABL is concentrated among:

• Mid-market manufacturers — £20m–£200m turnover, with meaningful plant and stock.
• Distribution and wholesale businesses — large debtor books and inventory.
• Private-equity-backed businesses — PE houses use ABL routinely to fund working capital alongside their equity.
• Companies going through M&A — ABL is structurally suited to acquisition financing.
• Turnaround and restructuring situations — companies refinancing out of distress, often with specialist ABL lenders who price for risk.

In the UK, ABL volumes sit in the £20bn–£25bn outstanding range, dominated by a handful of bank-owned and independent ABL providers. The market is concentrated and deeply specialised — not all ABL lenders are alike, and matching the right one to the situation is half the value of a good adviser.

Other options

Alternatives.

• Invoice finance plus asset finance — simpler combination for businesses that don't need the full ABL structure.
• Cash-flow loan — better if earnings are strong and assets are limited.
• Commercial mortgage — cheaper for property-only borrowing.
• Mezzanine or unitranche debt — more expensive, but less restrictive for sponsor-backed deals.
• Equity — more expensive over time, but no covenants and no security.
• Sale and leaseback of property or plant — releases capital without the operational overhead of ABL.

Summary

Summary.

Asset based lending is a serious tool for serious situations. It's the right answer when you have a substantial asset base, a meaningful funding requirement, and a finance function able to operate inside a covenanted, monitored structure. It's the wrong answer for most SMEs — too complex, too expensive in fixed costs, and too intrusive.

For mid-market manufacturers, distributors, and acquirers, ABL often unlocks more capital than any other product. For businesses below that scale or in asset-light sectors, the simpler combinations almost always win.