Asset-based Lending vs. Traditional Lending

Asset-based lending (ABL) can provide more working capital liquidity and greater flexibility than a
typical cash-flow-oriented structure allows.
ABL Traditional Lending
Capacity Availability tied to company's eligible assets, primarily cash, accounts receivable, inventory, machinery and equipment and real estate Based on company's leverage and ability to access bank lenders and, where necessary, institutional investors
Structure Revolver-heavy with typical maturity between three to five years Revolver or funded term loan
Monitoring Achieved through submission of periodic borrowing base and collateral diligence typically including inventory appraisal and field exam Depending on financial covenant, generally includes minimum debt service coverage and maximum leverage tests
Investor universe Deep and well-defined market comprised of both bank and
non-bank lenders; emphasis on utilization and all-in pricing		 Institutional investors important to maximize liquidity
Pricing Typically in LIBOR tranches; grid pricing based on availability, coverage or leverage Earnings before interest, taxes, depreciation and amortization (EBITDA) or covenant driven
Covenant structure
  • Cash dominion (common in
    asset-based market) may not be required for an undrawn facility
  • Inventory appraisal and field exam typically necessary
  • Flexibility with respect to financial covenants; emphasis on
    fixed-charge coverage and excess line availability
 Financial covenant package typically includes a minimum coverage test, maximum leverage test and balance sheet maintenance test