What is Asset based Lending (ABL)?
Asset based lending provide loan in against of the fixed asset (i.e., land, building, equipment, etc.) or current asset (i.e. stock, accounts receivable etc) given by the borrower of the loan as a collateral security. Asset based lending is the most common and reliable form of credit because it provides loan in against the assets of the borrowers.
Normally, asset based loan are provided for the time form six months to three years or even more and it is best to meet the cash flow requirements of the companies. These loans are usually used by the companies for the purpose of working capital, mergers, purchase of assets and debt refinancing etc.
Boon of ABL:
Asset based lending could also be called as commercial financing or asset based financing because these are used to satisfy the cash inflow of the company. ABL has some advantages but the biggest advantage of asset based lending is the rate of interest which is comparatively lower than other kinds of loans.
When Asset Based Lending is Helpful?
ABL is ideal for the financial expansion of the company. It could also be used for other purpose like business mergers and acquisition, refinancing surviving business loan etc. The highest amount of loan which one could borrow depends upon the liquid value of the inventory, fixed assets determination and account receivables. One could also receive the term loan and credit against the security of these assets. You could get up to 40% of term loan against the value of asset.
Asset based lending differs form the traditional commercial financing because asset based lending depends more on the collateral and liquidity crisis. It provides more liquidity to the borrower while craving little financial agreements.
Factors influencing the ABL Market:
Although there are many factors that influence the market of ABL but here are some basic and important factors which affect the market a lot.
- Obstacle in the policy of cash flow.
- Economic lag since the calendar year of 2001.
- Firmness and competitiveness of ABL.