Not limited to just invoices, an Asset Based Loan allows your company to borrow against accounts receivable but may also include fixed assets such as inventory and machinery. Asset Based Loans can be viewed as a halfway point between a bank Line of Credit and Factoring. In cases where the ABL is leveraged against invoices, it works much like a line of credit. You may borrow up to 80% against eligible receivables, paying back the borrowed amounts plus interest when the invoices are paid.
The advantages of an Asset based loan:
Because the loan is leveraged against your assets, the current history or even credit rating of your company may be irrelevant. This can be an excellent option for growing businesses that have not yet established a credit history but that have established good cash flow. In addition, you’ll have the flexibility to access cash in relation to your current accounts receivable which can enable much more rapid growth of your company than waiting for customers to pay. Finally, Asset Based Loans may be cheaper than Factoring, as the interest rate is usually based upon the prime rate.
The amount you can borrow is determined by a borrowing certificate, which details your assets such as outstanding receivables (minus ineligible assets) and applies the resulting amount to your credit limit.