Asset-Based Lending

Turning Assets Into Opportunities

Flexible Financing Powered by Asset-Based Lenders and Your Business Assets

Discover the untapped potential in your company’s assets with SouthStar Capital’s asset-based lending (ABL) solutions. Whether you’re driving rapid growth, balancing seasonal cash flow fluctuations, or looking for funding beyond your bank’s credit limits, our asset-based lenders provide the flexible capital necessary for your success.

What is Asset-Based Lending?

Asset-based lending refers to financing secured by a company’s assets, such as accounts receivable, equipment, real estate, and inventory. More specifically, ABL loans utilize a combination of asset types to provide businesses with the working capital they need. ABL lenders typically structure these loans with specific guidelines and repayment controls, making them a strategic funding option for businesses that need a more aggressive financing approach than a traditional line of credit.

Banks have historically offered asset-based loans to companies with strong financial histories but requiring additional liquidity. To qualify, businesses must demonstrate a proven track record of sales and have strong reporting and monitoring systems. ABL lines generally include stringent requirements on guarantees, credit history, pending liabilities, and facility covenants.

How Does Asset-Based Lending Work?

Asset-based lending involves an evaluation of assets and cash flow, focusing on collateral and sales performance. While traditional lines of credit emphasize cash flow and profitability ratios for repayment, ABL loans prioritize collateral value and the lender’s ability to liquidate assets if needed. However, asset-based lending still considers cash flow and sales performance, making qualification more rigorous than financing options focused solely on accounts receivable, purchase orders, or equipment.

Get the cash you need!

SouthStar Advantage

Asset-Based Lending

Greater Borrowing Power—Funding availability based on assets, not cash-flow.

Asset Utilization—Mixed collateral structures can turn available assets into flexible growth capital.

Flexible Covenants—Less restrictive debt to cash and net-worth-focused covenants.

Lower Cost—A cheaper alternative to high-leverage debt packages.

The Qualification Process for ABL

The qualification process for asset-based lending often involves the following steps:

Collateral Valuation

Determining the specific value of the asset types being offered as part of the borrowing basis, keeping in mind that the lender's ability to liquidate the assets quickly will significantly influence the value assigned and, thereby, the ability to draw funds from the facility. The more specific or specialized the asset type is, the more challenging the valuation becomes. Outside appraisals are standard for inventory, real estate, and equipment assets. In addition, an on-site financial audit is usually a required part of the facility approval.

Establishing a Borrowing Base

Setting a baseline based on the asset's value and the lender's comfort level for liquidating those assets will result in a borrowing base that provides an ongoing guideline for how much advance may be given. A typical borrow base may be as follows:

Accounts Receivable: Up to 90% of the receivables aged less than 60 days, based on approved account debtors, subject to reduction for doubtful accounts or historical offsets.
Equipment: 60% of the approved value, based on the type, age, and market conditions for the particular equipment.
Inventory: 50% or less of the approved value on a cost basis, which may be limited based on the marketability of the inventory, the overall value of the receivables, or the lender's inventory exposure on the facility.

Agreement on Line Covenants

Asset-based lending facilities often require extensive facility covenants that require detailed reporting and monitoring of the assets being used as collateral.

Implementing a Repayment Process

Most asset-based facilities are revolving, meaning they are constantly being paid back via the direct revenue that the asset generates so that the approved advance percentages are not exceeded and are available for ongoing funding.

SouthStar Advantage

Asset-Based Lending

Stability—A good solution for cash-intensive industries.

Cooperative Lending—Often, we work with existing bank financing to mitigate risk while still increasing capacity.

Accessibility—Companies with less-than-perfect histories may still qualify.

Opportunistic Acquisition—Utilize existing assets to take advantage of strategic purchases.