19 Jul What are Asset Based Loans (ABL)?
Asset Based Loans (ABL) are commercial loans or revolving lines of credit with overall credit limits, but also have further limits, based on the qualifying collateral value of certain assets (eligible collateral value). Asset Based Loans are a financing tool that enables lenders to provide financing to companies to which it might not otherwise be able to provide financing. Asset Based Loans are common financing vehicles for companies in specific industries, seasonal businesses, companies with relatively long production cycles, extended sales terms, sales subject to excessive discounts, allowances or other deductions, companies that have had continuous losses or are generally considered to be in a risky industry.
Asset Based Loans require the borrower to maintain accurate records and provide the lender with timely and accurate reports on at least a monthly basis. Additionally, the reports provided to the lender, as well as all of the Company’s books and records, are subject to audit by the lender at its discretion. These audits are referred to as field examinations, which can be performed by employees of the lender or outside contractors hired by the lender. Field examinations can be required by the lender on any frequency determined by the lender, but are typically on an annual basis, at a minimum. Lenders generally pass the cost of the field exam on to the Company. The cost of field exams vary, depending on a number of factors, and can range from a few thousand dollars to over twenty thousand dollars, if the loan structure is complex, the company has several divisions or subsidiaries or if the Company’s records are disorganized and unprepared for the examination.
Asset Based Loans provide solutions for companies who are turned down by the Traditional Corporate Loan Departments of banks, although most Commercial Banks have Asset Based Loan departments. Asset Based Loans are also offered by many non-bank lenders, with some specialties in accounts receivable finance, inventory finance, purchase order finance, equipment finance and other types of collateral.