Asset-based lending (ABL) is a loan or a credit line secured by business assets such as receivables and inventory. Per the OCC, advances are limited to a percentage of eligible collateral, called the borrowing base, and repayment comes mainly from turning that collateral into cash (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017).
What is asset-based lending?
The lender does not rely only on the borrower's earnings. It relies on collateral it can identify, value, and collect. Receivables, inventory, equipment, and sometimes real estate are the usual pools. The OCC handbook is written for banks. It is the source for the limits below. This page does not add rates the handbook does not state.
How the borrowing base works
The borrowing base is the amount the lender will advance against eligible collateral. Ineligible collateral is left out before the advance rate is applied. The borrower reports the base on a schedule, and the lender tests it.
Eligible and ineligible receivables
The OCC says an account is normally ineligible when it is past due more than three times the terms. For 30-day terms, that example is 90 days past due (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017). Other exclusions, such as affiliate accounts, depend on the credit agreement. This page states the past-due example the handbook gives and does not invent others.
Advance rates
The OCC notes that retail inventory loans were traditionally made at 80 percent of net orderly liquidation value (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017). This page does not state a receivables advance rate. The handbook's discussion of advance rates should be read in the version dated January 27, 2017, before a different percentage is used.
Collateral types
- Accounts receivable, which become cash when customers pay. See accounts receivable.
- Inventory, valued on a liquidation basis when the handbook's retail example applies.
- Equipment, and in some facilities real estate, under a separate valuation.
A security interest in those assets is a filing question as well as a credit question. The public record of a filing is a UCC lien search.
ABL, factoring, and cash-flow lending
| Asset-based lending | Factoring | Cash-flow lending | |
|---|---|---|---|
| What moves | A pledge. The business keeps the receivables. | A sale of receivables. See invoice factoring. | A loan based on earnings, with looser collateral. |
| Who is repaid from | Collections on the collateral. | The customer's payment to the factor. | Operating cash flow. |
| Limit | The borrowing base. | The invoices the factor accepts. | A covenant package tied to earnings. |
An asset-based line is a form of line of credit. It is not, by itself, private credit as a legal category. Private credit is a market label, not a definition in the OCC handbook.
Pros and cons
The OCC notes that both troubled and healthy companies use asset-based lending (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017). Availability can grow when eligible receivables grow, and it can shrink when they do not. Reporting is heavier than on an unsecured line, because the borrowing base has to be rebuilt. A lender's control of cash is tighter when a lockbox or cash dominion is part of the deal.
Controls lenders use
The OCC handbook describes field exams of the collateral and cash controls such as a lockbox or cash dominion (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017). A lockbox is the bank address that receives customer payments. See lockbox banking. Those controls are how the lender checks that the borrowing base is real.
A field exam is a review of the collateral, not a financial-statement audit. The examiner tests whether the accounts on the borrowing-base certificate exist, whether they are eligible under the past-due rule above, and whether the cash actually arrived. Cash dominion or a lockbox is how the lender sees that cash. The OCC handbook describes those controls (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017). It does not, in the sentences this page relies on, set a receivables advance rate. Do not fill that gap with a percentage from memory.
Asset-based lending is a credit product. It is not a sale of the receivables, and it is not a letter of credit. The borrower still owns the invoices and still has to collect them. If collections slow, the borrowing base shrinks and availability falls. That is the risk the certificate is meant to show early.
A line of credit can be asset-based or not. The asset-based version has a borrowing base. An unsecured line does not rebuild availability from eligible invoices each month. Calling every line of credit "ABL" hides that difference. The OCC handbook is about the secured, collateral-reporting kind (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017).
Related structures are AR securitization and using receivables when payroll is due. The topic hub is receivables and credit.
FAQ
What is asset-based lending?
It is credit secured by business assets. The lender advances against a borrowing base of eligible collateral (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017).What is a borrowing base?
It is the amount of eligible collateral the lender will advance against, after ineligible items are removed (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017).Is ABL the same as factoring?
No. In factoring, receivables are sold. In asset-based lending, they are pledged as collateral and the borrower still owns them.Which receivables are ineligible?
The OCC says an account is normally ineligible when it is past due more than three times the invoice terms, for example 90 days on 30-day terms (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017).Who uses asset-based lending?
The OCC notes that both troubled companies and healthy companies use it (OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017).Sources
- OCC Comptroller's Handbook, Asset-Based Lending, version 1.0 March 2014, version 1.1 January 27, 2017 Accessed October 26, 2026.