Asset-based lending: a novel approach to business financing that uses balance sheet assets as security against lending.

Asset-based lending (ABL) is a way for established businesses to finance rapid growth or big contracts, using assets such as accounts receivable, inventory, equipment, machinery, or real estate as security for a business loan.

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Asset-based lending: a novel approach to business financing that uses balance sheet assets as security against lending.

What is asset-based lending?

Asset-based lending is a type of loan that is secured against an asset. Hence, the lender grants the loan while using assets as collateral. Lenders can use assets such as inventory, accounts receivable, property, plant and machinery to assess whether an applicant should be issued a new credit facility.

The amount available is dependent on the value of specific assets. This contrasts with traditional financing solutions, where lenders consider the balance sheet, profitability, and working capital alone. Now thought an attractive alternative financing option popular with businesses operating in volatile markets or with unstable cash flow.

What are the benefits?

Asset-based lending enables businesses to raise funds without credit checks or a cash flow forecast. It's ideal for scaling a business or safeguarding working capital in unpredictable markets. Some of the primary benefits are as follows.

  • Higher levels of funding than invoice finance alone

  • Faster release of working capital against both inventory and property

  • Flexible additional funding for plant and machinery

  • More control over cash flow finance

  • Financial stability for SMEs, micro-businesses, and medium-sized enterprises

  • A tailored solution built around the particular needs of the business

Types of assets that can be used to secure funding 

When it comes to asset-backed lending, it is the current and fixed assets of a business that a lender uses to evaluate if an applicant should be issued a loan or not. The following are the most common types of assets used for collateral.

  • Debtor book i.e. amounts owed by customers

  • Inventory, including raw materials, work-in-progress and finished goods 

  • Marketable securities, such as those on a balance sheet, are assets that can quickly be converted into cash

  • Real estate, land and other immovable property

  • Equipment (PP&E), such as machinery, office equipment, furniture, and vehicles

Eligibility for asset-based lending

Asset-based lenders will need an established business with quantifiable business assets and a trading history. Asset-based loans will not be accessible without these.

As discussed above, assets can be anything from accounts receivable to real estate. However, lenders prefer liquid collateral like invoices and cash.

If you intend on using inventory as security for lending, you'll need to be able to prove its market value. In the UK, this amounts to the lower cost and the estimated selling price (less any costs to complete and sell).

The terms and conditions of an asset-based loan depend on the value and type of the assets offered by the business. The interest rates charged are dependent on the businesses' credit history, cash flow, and the number of years trading.

What do I need to consider?

Every business —at some point— will need a loan to access a line of credit or for working capital. However, since many companies struggle to demonstrate positive cash flow, the lender may offer current and fixed assets as collateral instead. 

As this process is monitored and regulated by the prudential regulation authority, your company will undergo field examinations by an independent third party to audit your financial and physical assets. Once this appraisal is complete, and the eligible collateral determined, the lender will seek to establish dialogue, such as covenant testing and quarterly financial reporting.

How do I apply?

There are asset-based lending platforms in the UK and high-street banks that offer asset-based lending products. 

For a clearer idea about what to expect, please read our latest article on asset-based lending.


With an asset-based loan, businesses can leverage their balance sheet (without capitalising on equity) by using company assets as collateral for a loan. You can use anything from your debtor book to accounts receivable, office equipment and real estate to secure funding. 

At Funding Options, we work with a number of lenders and other financial services across the business finance market. If you’re looking for asset-based lending or a different kind of finance, we can help you find the right funding for your business.

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Joe Morley

Joe Morley

Head of Unsecured Lending

Joe has worked in the alternative lending space since 2015. During this time he has helped hundreds of SMEs access millions in essential funding ranging from long-term asset-backed lending to short-term unsecured revolving credit lines and beyond. In his role, Joe manages and supports a large team of Credit Finance specialists.

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