Asset-Based Lending: How ABL Works, What It Costs and Who It Fits (2026 Guide)
Updated November 2026
Asset-based lending (ABL) is business financing secured by the company’s assets, such as receivables, inventory, equipment or real estate.[1][2] It is also called asset-backed lending. Because the loan is based on asset values rather than cash flow, it can work for businesses with strong assets but uneven earnings.[2][4]
This guide covers how ABL works, what it costs, how it compares with cash flow lending and how to choose a lender.
How does asset-based lending work?
An asset-based lender advances a percentage of the value of eligible collateral. The total of those amounts is the borrowing base, which sets the most you can borrow at any time.[2][3]
| Collateral | Typical advance rate |
|---|---|
| Eligible accounts receivable | About 85%–90%[2] |
| Eligible inventory | About 50%–75%[2] |
| Marketable securities | About 85% in one lender example[1] |
- Structure: often a revolving line of credit that rises and falls with the borrowing base, sometimes alongside a term loan.[2][3]
- What lenders prefer: fast-turning assets. Receivables come first, then inventory, equipment and real estate.[2]
- What lenders discount or exclude: past-due receivables, uninsured foreign receivables, slow-moving or specialized inventory, perishable goods and single-purpose equipment.[1][2]
- Reporting: borrowers typically report on their collateral monthly, and lenders may run field exams and appraisals.[2][3]
- Covenants: usually fewer than a cash flow loan, often a single fixed-charge coverage test that may only apply if availability falls below a set level.[2][3]
What does asset-based lending cost?
Because ABL is fully secured, interest rates are generally comparable to traditional commercial loans[2] and can be lower than unsecured business loans.[1] Watch for the extra costs:
- Fees: origination, audit and due-diligence fees are common.[1]
- Field exams and appraisals: lenders may charge for regular collateral reviews.[3]
- Unused line fees: some revolving facilities charge on the undrawn portion.
Borrowing-base example (illustration only). A distributor has $4 million of eligible receivables and $3 million of eligible inventory.
| Collateral | Eligible value | Advance rate | Availability |
|---|---|---|---|
| Receivables | $4,000,000 | 85% | $3,400,000 |
| Inventory | $3,000,000 | 50% | $1,500,000 |
| Borrowing base | $4,900,000 |
If a large customer pays late and its invoices become ineligible, the borrowing base falls and so does availability. The figures are illustrative and are not an offer of terms.
Asset-based lending vs. cash flow lending
| Asset-based lending | Cash flow lending | |
|---|---|---|
| Based on | Receivables, inventory and specified fixed assets[4] | Historical and projected cash flow, often EBITDA[4] |
| How it’s sized | A percentage of eligible collateral[3] | A multiple of EBITDA[3] |
| Security | Fully secured by the assets[3] | May be unsecured or partly secured[3] |
| Covenants | Fewer, often one springing fixed-charge test[2][3] | Leverage, fixed-charge coverage and capex limits[3][4] |
| Reporting | Monthly collateral reporting, field exams[2][3] | Mostly routine financial reporting[4] |
| Best fit | Strong assets, uneven cash flow[4] | Strong margins, steady cash flow[4] |
For more on the alternative, see our guide to cash flow lending. Other asset-backed options, such as invoice factoring, purchase order financing and equipment financing, are covered in our guide to specialty financing.
Looking for $1M–$50M in growth capital?
Hum Financial, Hum Capital’s direct lending arm, provides non-dilutive financing to established U.S. businesses, with typical terms of 12–36 months.
See If You QualifyWho asset-based lending fits, and the risks
- Manufacturers, distributors, wholesalers and retailers with large receivables and inventory
- Seasonal or cyclical businesses, and companies with thin or volatile EBITDA margins
- Companies funding growth, an acquisition, a recapitalization or a turnaround
It may not fit businesses with few physical assets, such as many software and service companies, or businesses that can’t support monthly collateral reporting.[2][3]
- Availability can shrink. If receivables age or inventory slows, your borrowing base falls.
- Your assets are at risk. In a default, the lender can take and sell the pledged collateral.
- Reporting takes work. Monthly borrowing-base reports and field exams require a disciplined finance team.
How to choose an asset-based lender
- What advance rates will you offer on each asset type?[2]
- What makes a receivable or inventory item ineligible? Ask for the full list of exclusions.[2]
- What fees apply? Ask about origination, audit, field exam and unused line fees.[1]
- How often do I report, and in what format?[2]
- What covenants apply, and when are they tested? Check whether the fixed-charge test is “springing.”[3]
- What is the total cost at my expected usage? Compare offers at the amount you plan to draw, not the maximum.
Direct lending from Hum
For established businesses that want a set term and predictable payments, direct lending is another non-dilutive option. Hum Financial, Hum Capital’s direct lending arm, provides $1M–$50M in non-dilutive growth capital to established U.S. businesses, with typical terms of 12–36 months.[5]
Related reading:
- Cash Flow Lending: How It Works, What It Costs and Who Qualifies
- Specialty Financing: A 2026 Guide to Specialty Finance and Specialty Lending
- Business Bridge Loans: How Bridge Financing Works
Ready to explore direct lending? Get funded by Hum.
Frequently asked questions
What is asset-based lending?
Business financing secured by receivables, inventory, equipment or real estate.[1][2]
Is asset-backed lending the same as asset-based lending?
The terms are often used interchangeably for business loans secured by company assets.
What is a borrowing base?
The total of the advance rates applied to your eligible collateral. It sets the maximum you can borrow.[2]
What are typical ABL advance rates?
About 85%–90% of eligible receivables and 50%–75% of eligible inventory.[2]
Is asset-based lending expensive?
Rates are generally comparable to traditional commercial loans because the loan is fully secured, but fees for audits and field exams add to the cost.[1][2]
What is the difference between asset-based and cash flow lending?
ABL is based on asset values; cash flow lending is based on earnings, usually EBITDA.[3][4]
This article is for general information only and is not financial, legal or tax advice. Terms vary by lender and by business. Talk with a qualified advisor before entering any financing agreement.
Sources
- Randa Kriss, “Asset-Based Lending: Definition, Examples, Pros and Cons”, NerdWallet, updated February 23, 2026.
- “Can ABL options fuel your business — and keep it running?”, U.S. Bank, updated July 22, 2026.
- Michael Panichi, “Asset-based lending”, KeyBank, July 2024.
- “Asset-based lending vs. cash flow loans”, Wells Fargo, accessed November 2, 2026.
- Hum Financial, Hum Capital, accessed November 2, 2026.
