How does asset based lending work

However, some assets may not be good collateral for an ABL facility. For example, in the case of a construction company, lenders may not feel comfortable lending against accounts receivable that could be difficult to collect due to progress billings, retention or the presence of bonding requirements. In terms of inventory, perishable goods may have expiration dates that limit their value.

With ABL, you will typically need to provide monthly reports updating the status of your borrowing base—the collateral on which a credit facility depends. That kind of reporting can add an extra level of paperwork and expense for companies that choose asset-based lending, but innovations in automation can help simplify that process.

That degree of automation can speed up and simplify the reporting process. For the right kind of business and situation, ABL may unlock more capital than cash-flow formulas would permit. Companies that experience seasonal or cyclical ups and downs in sales; those that are subject to commodity price fluctuations; retailers with ebbs and flows in revenues; and other asset-rich businesses that want flexibility to deploy capital may find that ABL offers the flexibility and access to capital they need to stay competitive in an ever-changing economy.

If you would like to know more about the possibilities of ABL and whether it could help meet your need for capital, please contact your Bank of America Business Capital specialist. Creating fast, smart, and more secure ways to work, from mobile access to greate By clicking Continue, you will be taken to a website that is not affiliated with Bank of America and may offer a different privacy policy and level of security.

Bank of America is not responsible for and does not endorse, guarantee or monitor content, availability, viewpoints, products or services that are offered or expressed on other websites. We strive to provide you with information about products and services you might find interesting and useful.

Relationship-based ads and online behavioral advertising help us do that. Here's how it works: We gather information about your online activities, such as the searches you conduct on our Sites and the pages you visit. This information may be used to deliver advertising on our Sites and offline for example, by email that's customized to meet specific interests you may have.

If you prefer that we do not use this information, you may opt out of online behavioral advertising. If you opt out, though, you may still receive generic advertising. Also, if you opt out of online behavioral advertising, you may still see ads when you sign in to your account, for example through Online Banking or MyMerrill Account Access. These ads are based on your specific account relationships with us.

To learn more about relationship-based ads, online behavioral advertising and our privacy practices, please review the Bank of America Online Privacy Notice and our Online Privacy FAQs. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.

Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation "Investment Banking Affiliates" , including, in the United States, BofA Securities, Inc.

BofA Securities, Inc. These activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N. Bank of America provides the following banking products in India: working capital and term loans, structured finance, export finance, global cash management, trade products, foreign exchange services and currency solutions.

Bank of America Corporation and its affiliates do not perform in any jurisdiction banking activities that are reserved by local law to licensed banks, except in those jurisdictions where its banking affiliates have procured the necessary licenses. Some or all of the products may not be available in certain jurisdictions and are subject to change without notice.

This entity does not conduct any activities subject to banking license, such as capturing deposits from the public. Bank of America N. Neither Bank of America, N. Bank of America Corporation does not have banking affiliates, branches or bank representative offices in any other jurisdiction in Latin America. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, National Association, Member FDIC.

Bank of America, National Association, Hong Kong Branch, is a branch of a national banking association organized and existing with limited liability under the laws of the United States of America. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation including Bank of America, National Association, Canada Branch BANA CB which is an authorized foreign bank regulated by the Office of the Superintendent of Financial Institutions.

BANA CB shall not impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including bank and any of its affiliates, as a condition for obtaining another product or service from BANA CB. Trading in securities and financial instruments, and strategic advisory and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation including in Canada by Merrill Lynch Canada Inc.

Merrill Lynch Canada Inc. Disclosure of best execution obligations and routing practices for Merrill Lynch Canada Inc. Client agrees that any trade confirmation, account statement or other document delivered through the Sites by "clicking" on the designated spaces in or relating to such document shall be deemed to be "in writing" and to have been "signed" and delivered for all purposes by Client.

Any record of such transaction or confirmation including, without limitation, electronic records shall be deemed to be "in writing. Bank of America hereby grants to Client a worldwide, non-exclusive, non-sublicensable, non-transferable, non-assignable, personal right and license to access and use the Sites solely for Client's internal use in accordance with the terms of this Agreement.

Client accepts the right and license granted herein to access and use the Sites solely in accordance with this Agreement and any rules or restrictions or procedures published by Bank of America on the Sites from time to time.

Other than the license granted hereunder, Client obtains no rights to the Sites. Client may not access or use the Sites in any way that may infringe any IP right of Bank of America or its Affiliates or licensors.

Client promptly shall notify Bank of America of any actual or threatened infringement or misappropriation of IP, or any portion thereof, of which it becomes aware.

Client acknowledges and agrees that it will not use, or allow the use of the Sites in contravention of, and will comply with, any applicable laws, rules, regulations or interpretations collectively, "Applicable Law".

Client agrees that it will not, and will not authorize or permit any person "Authorized Person" under its control, under any circumstance to:. All cost and expense of equipment, operating platforms, and software necessary to access and use the Sites, and the maintenance thereof shall be the sole responsibility of Client. Unsolicited emails and other information sent to Dentons will not be considered confidential, may be disclosed to others, may not receive a response, and do not create a lawyer-client relationship.

If you are not already a client of Dentons, please do not send us any confidential information. To proceed, please click Accept. Asset-Based Lending — a useful tool in the recovery? Home Insights Asset-Based Lending — a useful tool in the recovery? Regional Capabilities. How does Asset-Based Lending work in practice? The nature of the arrangements means that there are some common legal issues arising on asset-based lending transactions including: The Borrowing Base The borrowing base is a formula that is used to determine the maximum amount of debt that the borrower can borrow at any point in time, based on the value of the agreed asset pool.

Borrowing Base v. Collateral It is important for all parties to remember that, in asset-based lending, the borrowing base which supports the loans is not the same as the collateral that secures them.

Security and Liquidity For the lender it is crucial that, in a default scenario, it has the tools to take control of the borrowing base assets and convert these readily into cash to obtain repayment of the loans. Lender Control of Assets In asset-based lending, the lender generally exercises more control over the borrowing base assets than lenders typically exercise over collateral on other secured loans. As the borrower manufactures or acquires new inventory, and as they generate receivables from sales, these new assets become available for inclusion in the borrowing base.

The line of credit is then paid down overtime by collecting on inventory and outstanding receivables. ABL allows you to borrow a percentage of your accounts receivable, equipment, and inventory. All or one of these assets may be utilized in an Asset Based Line of Credit. Plus, real life success stories on business growth with an Asset Based Lender. When considering if Asset Based Lending is the right solution for obtaining working capital for your business, ask yourself the following questions.

Cash flow Improve the money you have coming in by leveraging the value of untapped unencumbered assets. Charges If you default on payments or attempt to pay off the loan early, you may face charges. Potential to lose assets If you fail to make your repayments, the lender may seize the asset you've put up as security and sell it.

Without assets or a trading history, lenders will not be able to lend your business money. Do you have assets of value on your balance sheet? Do you have detailed and accurate financial statements covering your trading history?

Asset-based lenders base their decision on: your financial performance your trading history the value and type of assets you hold In your financial statements, this information must be set out clearly and show your ability to repay the facility. Do you have commonly sold inventory? How much are you looking for? What is the interest rate on the facility? What is the advance rate against the various assets?

How much will I pay for the finance facility in the long run? Are there charges for early repayment? To find out if asset-based lending is right for you, use our finance finder tool For a clearer idea of what you need to do to prepare your business for asset-based lending, use our checklist.

Other finance options Click here to visit Private Equity. Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level. Is this suitable for your business? Private Equity Click here to the close modal.