Asset-Based Line of Credit
An asset-based line of credit (ABL) is a revolving credit facility secured by business assets — typically accounts receivable and inventory — providing flexible working capital with borrowing capacity scaling to asset base, distinct from traditional unsecured credit lines.
Why This Matters
ABL provides working capital to asset-rich businesses that don't qualify for unsecured bank credit. The mechanics: lender extends revolving credit secured by formula calculated on receivables and inventory (typical: 80-85% advance rate on eligible AR, 50-60% advance rate on eligible inventory). Borrowing scales as assets grow; reduces as assets shrink. ABL pricing is typically prime + 2-6%, far below MCA equivalent cost, but with significant operational requirements: monthly borrowing base certifications, asset audits, lender field examinations. Most ABL is provided by specialty commercial finance lenders rather than traditional banks.
Frequently Asked Questions
Frequently Asked Questions
How does ABL differ from MCA?
ABL is secured revolving credit pricing in single-digit annual rates; MCA is unsecured advance with double-digit effective costs. ABL requires substantial business assets (receivables, inventory) and operational complexity (monthly reporting, audits); MCA requires minimal documentation and offers simple structure. Different products serving different merchant capital needs and asset profiles.
What businesses qualify for ABL?
Asset-rich businesses with $5M+ revenue typically: distribution, manufacturing, wholesale, construction, and other inventory/receivable-intensive industries. ABL is generally not appropriate for service businesses without substantial asset bases or for very small businesses unable to support the operational complexity ABL requires.