How asset-based lending is helping businesses unlock cash flow

Businesses today are facing more and more pressure to manage their cash flow and fund growth. At Evolve Business Finance, we’re seeing a clear shift in how firms manage their finances – in the past, many of our clients chose straightforward loans or cashflow funding. Now, more are refinancing bank debts, property loans and invoice discounting facilities. They are also turning to their assets to raise cash. And we’re not just talking about small businesses — mid-sized and larger firms are also feeling the squeeze with many now using asset-based lending (ABL) to support buyouts, acquisitions and day-to-day operations.

 What is asset-based lending and how does it work?

Asset-based lending allows businesses to borrow money by using assets they already own. This could be unpaid invoices, stock, machinery or property. The lender secures the loan against these assets, giving the business quick access to funds. ABL is flexible and can grow as the business grows. If sales increase, so does the value of assets, allowing companies to borrow more.

 What types of funding fall under asset-based lending?

Asset-based lending covers a range of funding options including:

• Invoice discounting: borrowing against unpaid invoices to release cash tied up in sales.
• Property finance: using commercial property as security for a loan.
• Asset finance: funding tied to physical assets like machinery or vehicles.
• Cashflow lending: loans based on the cash coming in and out of the business.

 How is asset-based lending different from asset finance?

Though they sound similar, asset-based lending and asset finance are different. Asset finance usually helps businesses buy new assets (ie equipment) by spreading the cost over time. ABL, on the other hand, uses existing assets to raise funds.

Which businesses can benefit most from asset-based lending?

ABL is useful for businesses with valuable assets but limited cash flow. This often includes manufacturers, wholesalers and construction firms with high stock levels or unpaid invoices. However it’s becoming more popular with mid-sized and corporate businesses that need to free up cash. Companies use it to cover everyday costs, invest in growth or manage bigger projects like mergers or acquisitions.

What assets can be used to secure funding in asset-based lending?

Many types of assets can be used in ABL, including:

• Unpaid invoices
• Stock and inventory
• Commercial property
• Machinery and equipment
• Vehicles

Lenders will assess the value of these assets and offer funding based on how easily they can be turned into cash.

 What are the advantages and risks of asset-based lending?

The main advantage of ABL is its flexibility. Businesses can borrow against a range of assets and access funds quickly. It can also offer larger funding amounts than unsecured loans. However there can be risks. If a business can’t repay the borrowing, the lender can seize the assets. It’s obviously important to manage repayments carefully to avoid losing valuable parts of the business.

How do lenders assess eligibility for asset-based lending?

Lenders will look at the type and value of the assets offered. They also assess how stable the business is and how easily the assets can be turned into cash. Strong financial records, reliable customers and steady sales can improve chances of approval.

How can a business decide if asset-based lending is the right funding solution?

If a business has valuable assets but struggles with cash flow, ABL could be a viable choice. It’s also worth considering for businesses looking to fund growth or large projects. Working with a broker like Evolve Business Finance can help firms understand their options and find the right funding mix.