Asset Based Lending
What is Asset-Based Lending (ABL)?
ABL is a senior secured commercial loan facility where credit availability is based on a borrowing base derived from specific assets, such as accounts receivable, inventory, plant and equipment, or occasionally real estate.
Our Services in Relation to ABL
Folio Finance acts as an intermediary, connecting mid-market and small ASX-listed companies to ABL lenders.
We assess client balance sheets to identify suitable facilities, negotiate terms emphasizing assets over cash flow, and structure deals to suit your requirements.
Our proposition centREs on providing access to limited-market products, ensuring efficient capital deployment without property reliance, while managing the process from application to drawdown for optimal outcomes.
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Cash flow lending assesses capacity using projected earnings, EBITDA, leverage ratios, and debt service coverage, with strict covenants that can lead to breaches during downturns.
ABL prioritizes asset value and liquidity over earnings forecasts, resulting in:
■ Capacity
Based on advance rates (e.g., 80-90% on receivables, 50-70% on inventory), offering higher limits for asset-rich firms.
■ Covenants
Covenant-light, focusing on borrowing base maintenance through reporting, rather than financial ratios.
■ Risk
Lenders have direct asset recourse for quicker recovery in insolvency.
■ Flexibility
Supports cyclical businesses without repricing risks.
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ABL suits firms with strong assets but variable cash flow. The benefits include:
■ Liquidity
Monetizes receivables and inventory for working capital.
■ No Real Estate Required
Can exclude or remove property security, freeing assets.
■ Versatile Use
Funds growth, acquisitions, refinancing, or turnarounds.
■ Multinational Efficiency
Aggregates borrowing bases across jurisdictions under one facility.Description text goes here
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ABL is less prevalent in Australia than in the US, where it is standard for manufacturers and distributors. Local lending often favours cash flow or property, limiting ABL to specialized providers.
Expertise in borrowing base management and appraisals is scarce, requiring tailored security under the Personal Property Securities Act (PPSA).
Case STUDIES
01
■ Acquisition Support
A mid-tier private machinery rental company required $10M to acquire a competitor but was maxed out with its bank. An ABL facility was structured as a revolver with a stretch tranche, secured by receivables and equipment. This enabled the acquisition, improving revenue by 25% over 24 months.
02
■ Growth Funding
An ASX-listed fintech company, transitioning to profitability, needed to upsize financing for user expansion. A $18M syndicated ABL facility was arranged against receivables, providing scalable capital. The company achieved 40% user growth in 12 months, with exposure increased to $30M.
03
■ CAPITAL STRUCTURE OPTIMIZATION
A large-tier private equipment hire company sought $28M to refinance for growth. An ABL revolver on receivables and inventory, plus term debt, was structured to separate assets and raise excess capital. This supported acquisition and operations.
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■ PerFORMANCE CHALLANGES
A mid-tier private electrical importer required $25M for working capital refinance. An ABL facility against receivables and inventory enabled growth and operational stability.