Asset-based lending

What asset-based lending is

Asset-based lending (ABL) is a facility, usually revolving, where the amount you can draw depends on the value of your business assets: unpaid invoices, stock, plant and machinery and sometimes property. The lender recalculates that amount, the borrowing base, as the assets change. UK Finance describes it as lending where the accounts receivable will be a key asset, but lending will also be provided against a wider range of business assets.

The invoice book is normally the core. One UK bank says all ABL facilities must include an Invoice Finance (debtors) element; one specialist lender requires receivables to make up a minimum 51% of the facility. If you only need to borrow against invoices, see the invoice finance guide.

How to estimate an ABL facility

1. Enter each class of asset. Start with gross receivables and the share a lender would treat as ineligible, then stock, plant and property.
2. Enter the advance rates. Use the rates in an offer if you have one. Published figures are maximums, agreed case by case.
3. Set how much you expect to draw and the pricing. Enter the margin over Bank Rate for each part of the facility, the service fee and the fixed fees.
4. Read availability, then cost. Check the effective advance on your gross ledger, then the year-one cost and the effective annual cost.

When businesses use it

ABL is used by asset-rich businesses that need working capital headroom which grows with sales and stock, rather than a fixed loan limit. Manufacturers, distributors and wholesalers are the usual users.

It is also used around events. One UK bank lists management buy-outs (MBO) or management buy-ins (MBI) and business acquisitions; another lists acquisitions, refinancing, turnaround and restructuring (NatWest). It is common where covenants on a cash-flow loan are tight: one bank describes ABL as typically covenant-light.

It is not for capital projects. Grant Thornton warns that working capital funding should not be used to repay term debt facilities or to fund capital projects.

Facility sizes

ABL is a mid-market product. The British Business Bank says providers typically offer facilities of £5 million or more, although some providers will also offer facilities worth £1 million and above. Published minimums include £2 million at one bank; one specialist’s facilities typically range from £3m to £25m, and one large bank’s typical client has turnover in excess of £50m and a need of £15m or more.

The market is large. The British Business Bank estimates SME invoice finance and ABL advances at around £22bn in 2025. It also reports that independent providers now have a 30% market share of clients, an increase from 27% at the end of 2024. That is their share of client businesses, not of the amount lent. Smaller facilities exist, but below about £1m they are mostly invoice finance with a little stock added.

Advance rates and terms

Each asset class has its own advance rate. These are published maximums from three UK providers, not typical offers:

Providers stress that advanced rates for each asset class will be agreed on case-by-case basis. The rate you get on your whole ledger is lower again, because the lender first removes ineligible debts. Grant Thornton’s worked example takes £250,000 of gross receivables, deducts concentration, aged, overseas and contra items to leave £213,000, and lends 85% of that: an Effective advance rate 72% on the gross ledger.

Contracts typically run from 1-5 years at one provider; Grant Thornton notes ABL is often committed for a shorter period than a revolving credit facility, usually one year. Stock and receivables revolve; plant, property and any cash-flow loan are term elements. If a customer does not pay within the agreed period, typically 90-120 days at one bank, you repay that advance yourself. The British Business Bank says set-up can take as little as four weeks.

What it costs

Interest, called a discount charge on the receivables, is a margin over a base rate on what you draw. It accrues daily and is usually charged monthly: the charge is calculated on a daily basis and usually applied monthly. Bank Rate is 3.75% as at 19 October 2026 (Bank of England). On top come a service fee, a monitoring fee for stock, and arrangement, annual and valuation fees, which one bank lists as individually negotiated. Valuations are at your cost.

For the invoice element there are published ranges. Invest NI’s business service says discount charges range from 1.5% over base rate to 3% over base rate, and invoice discounting service fees generally range from 0.2% to 0.5% of turnover. Credit protection, if you take it, costs a further 0.5% of turnover to 2% of turnover, and most providers want three months’ notice to end the facility. No authoritative source publishes margins for the stock, plant and property tranches or typical arrangement and audit fees, so the calculator shows these only as Example inputs.

Against a revolving credit facility, Grant Thornton notes that borrowers can benefit from a lender’s lower cost of capital in the form of cheaper all-in pricing when compared to an RCF, because the lender’s security is stronger. Read the whole fee schedule: at low usage the fixed fees can cost more than the interest.

Security and controls

ABL is secured on the assets it funds. Expect a debenture over the company with fixed charges over property and plant, and an assignment of the receivables. The British Business Bank warns that if you fail to repay, the lender may seize the asset you’ve put up as security and sell it, and that you may not be able to use an asset already pledged for other finance (checklist). A personal guarantee may be requested.

Financial covenants are light; the control comes from the borrowing base. Grant Thornton says ABL tends to have minimal covenants, with the emphasis on asset quality and fixed charge cover. The lender applies reserves and deductions before the advance rate, and the British Business Bank notes an independent third party will conduct an audit of your assets. Expect to send aged debtor and creditor lists, management accounts, forecasts, stock listings and a fixed asset register (one bank’s list).

Who qualifies

The British Business Bank says ABL is aimed at established businesses that possess measurable business assets… and have a well-documented trading history. Lenders value stock at the lower of cost and its likely sale price after costs. B2B businesses do better: Grant Thornton notes B2C businesses are able to secure less funding under ABL, because they have fewer receivables. Size thresholds vary; one bank’s directory entry sets a minimum turnover of £6.5m.

Business ABL is generally outside FCA regulation, although the lending and audit process is formal. Check the status of any provider you deal with.

Who provides it

UK Finance says the sector comprises the large UK and international commercial and corporate banks, specialist, mid-tier and challenger banks, as well as a range of non-bank specialist finance providers. Some independent lenders are accredited under the government’s Growth Guarantee Scheme (example).

Pros and cons