Asset-based lending
A revolving credit line secured on your receivables and inventory, where how much you can borrow moves with the value of those assets. Flexible for growing or seasonal businesses, but closely monitored and usually dearer than ordinary bank lending.
- Secured on invoices
- Secured on assets
How it works
In asset-based lending (ABL), the lender sets a "borrowing base": a share of the value of your eligible receivables and inventory. As you sell and invoice, the base grows; as customers pay, the money goes to reduce the loan, and you can draw again. The most common form is a revolving line of credit.
How much you can borrow: according to the Office of the Comptroller of the Currency (OCC), banks commonly advance 70% to 85% of eligible receivables, and sometimes up to 90% of eligible business-to-business receivables. Inventory gets less, because it is harder to sell: typically up to 65% of its book value or 80% of its net orderly liquidation value. Receivables that are long overdue, owed by related companies or otherwise doubtful are usually excluded.
Controls: customer payments usually go into an account the lender controls (a lockbox), and you report your receivables and inventory regularly. The lender audits the collateral, starting with a field examination. Lenders rely on these controls rather than on many financial covenants.
Downsides, in the regulator's words: for the borrower, ABL "is often more expensive than other types of commercial lending," with higher rates and fees and the cost of frequent reporting, although it may still be the cheapest finance available to the business. Loan agreements also typically let the lender take control of your cash, or seize collateral more readily, if the borrowing base falls too low to support the loan.
Federal rules: business loans are not covered by the federal Truth in Lending rules (Regulation Z). If the lender is not a bank, a state commercial financing disclosure law may apply to smaller facilities; see business lines of credit for those rules.
Upsides and downsides
Upsides
- The amount you can borrow grows with your sales and stock
- Fewer financial covenants than many cash-flow loans
- Works for seasonal businesses and those growing quickly
Downsides
- Often more expensive than other commercial loans
- Frequent reporting, audits and a lockbox add cost and work
- Less useful if most of your value is not in receivables or inventory
Risks
- If the borrowing base falls, you may have to repay part of the loan at short notice
- The lender can take control of your cash or collateral more readily if things go wrong
- A supplier with a purchase money claim on inventory can rank ahead of the lender, which shrinks what you can borrow
What it costs
- How it is priced
- Interest on the amount drawn, plus fees for setting up, monitoring and auditing the facility
- Costs that are easy to miss
- Collateral audits and field examinations, often charged to you
- Fees for the unused part of the line, where charged
- Staff time for frequent reports on receivables and inventory
A share of your eligible receivables and inventory, which rises and falls with them.
Does it fit?
Could fit when
- You sell to other businesses on credit and need working capital that grows with sales
- Your business holds a lot of stock
Unlikely to fit when
- Your customers pay upfront or by card, so you have few receivables
- You need a small amount, where the monitoring costs would outweigh the benefit
- Your business has traded for less than two years
Who can use it
- Business types: Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative
- Needs sales (revenue)
- Only for businesses that sell to other businesses
- Receivables from business customers and, for inventory lines, stock that can be sold
- Records good enough for regular borrowing base reports and audits
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all asset-based and specialist lending
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- Aged receivables report
- Inventory report
- Financial statements
Regulation and protections
Regulators: Office of the Comptroller of the Currency (OCC); Federal Deposit Insurance Corporation (FDIC); Federal Reserve; Consumer Financial Protection Bureau (CFPB); State lending and financial regulators.
Who runs it: Private providers, nationwide.
Banks that lend this way are supervised by their regulators, and the OCC sets out how it expects banks to run ABL. Federal Truth in Lending rules do not cover business loans. The Equal Credit Opportunity Act (Regulation B) covers business credit.
Types of provider: Banks with asset-based lending teams; Specialist commercial finance companies.
Also consider
What has changed
- Checklist adds a search of liens already filed against the business, which the OCC says a lender should run before it lends.
Sources
- OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017) · checked October 20, 2026
- 12 CFR 1026.3 (Regulation Z): exempt transactions, including business credit · checked October 17, 2026
Something wrong or out of date?
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