Asset-Based Lending Practice Attorneys

Understanding Asset-Based Lending

Asset-based lending (ABL) is a flexible financing option that utilizes a company’s assets – such as accounts receivable, inventory, and equipment – as collateral for a loan. Unlike traditional loans based solely on a company’s creditworthiness, ABL considers the value of the assets themselves. This can be particularly beneficial for businesses with fluctuating cash flow or those seeking capital for growth and expansion. It’s a common solution for companies in sectors like manufacturing, distribution, and service industries.

At its core, ABL involves a lender providing funds to a borrower in exchange for a security interest in the borrower’s assets. The loan amount is typically a percentage of the appraised value of these assets, often ranging from 70% to 90% depending on the lender’s risk assessment and the specific assets involved. The lender retains a lien on the assets, and the borrower repays the loan plus interest. Crucially, the lender regularly monitors the value of the collateral to ensure it continues to support the loan agreement.

Key Components of an Asset-Based Lending Agreement

• Collateral Management: The lender typically has the right to appoint a third-party asset management company to oversee the collateral, ensuring accurate valuation and reporting.
• Recourse vs. Non-Recourse ABL: Recourse ABL means the borrower is liable for the entire loan amount if the assets are insufficient to cover the debt. Non-recourse ABL shifts the risk of loss to the lender.
• Financial Reporting: Borrowers are required to provide regular financial reports to the lender, allowing for ongoing monitoring of the business's financial health.
• Reserve Accounts: Lenders often require borrowers to establish reserve accounts to cover potential future obligations.

Our Expertise in Asset-Based Lending

Our experienced attorneys understand the intricacies of ABL transactions and can guide you through the entire process, from structuring the financing agreement to ensuring compliance with all applicable regulations. We assist businesses with:

• Structuring ABL Agreements: We help you tailor an ABL agreement to your specific needs and business goals.
• Negotiating Loan Terms: We skillfully negotiate favorable terms that maximize your access to capital while protecting your interests.
• Collateral Valuation: We work with qualified appraisers to ensure accurate collateral valuation.
• Compliance: We ensure your ABL transactions comply with all relevant laws and regulations.

Whether you are seeking working capital, financing for acquisitions, or growth capital, our legal team can help you navigate the complexities of asset-based lending and secure the funding you need to succeed.