Recently, many businesses have faced a new reality when they are abandoned by their traditional commercial banks and are forced to search for non-traditional sources of capital. Commercial banks have tightened their credit standards dramatically since the crash or have abandoned commercial lending entirely.
For many middle market distributors, manufacturers, and service firms, asset-based lending (ABL) may be the best alternative. Such firms typically have plentiful working capital assets that have historically not been leveraged to their full potential.
The basic concepts of an asset based financing are simple. Rather than rely on balance sheet ratios or the earning power of the business, the lender can advance funding based upon the expected net liquidation value of the available collateral, typically inventory and receivables.