Business Credit Built On Assets Grows Wider Appeal

(MENAFN- The Arabian Post)

Borrowing against physical and financial assets has become a defining feature of credit markets as more companies look for flexible funding beyond traditional loans. The model, known as asset-based lending, is drawing interest from mid-sized firms facing tighter bank standards and from fast-growing businesses seeking to unlock capital tied up in receivables, inventory, or machinery. This shift reflects an environment where cash-flow volatility, higher borrowing costs, and evolving supply-chain pressures have pushed companies to explore alternative routes to maintain liquidity. The broader trend signals how asset-backed credit, described in business credit built on assets grows wider appeal within the industry, is shaping lending practices across sectors.

Asset-based lending, or ABL, operates on a straightforward principle. A company pledges assets such as accounts receivable, inventory, or equipment as collateral in exchange for a revolving credit line or term loan. Lenders monitor asset values closely and adjust borrowing limits as those values change. This creates a structure that is often more adaptable than unsecured lending, particularly for firms with substantial working capital tied up in operations. Financial institutions offering ABL say the model reduces risk by aligning loan exposure with verifiable assets, allowing them to extend credit even when earnings are uneven.

Market analysts note that ABL has expanded beyond industrial sectors, where it first evolved, to technology, logistics, retail, and manufacturing. Firms that experience seasonal revenue swings or depend heavily on stock cycles are turning to ABL to stabilise cash flow. Businesses with strong receivables portfolios are particularly well positioned, as these assets provide predictable collateral. Lenders report heightened interest from exporters and distributors navigating elongated payment terms, as receivables-backed lines help manage the gap between shipment and payment.

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Credit specialists observe that banks have tightened underwriting standards due to macroeconomic uncertainty, leading borrowers to seek capital where asset quality carries more weight than earnings history. ABL transactions have grown in prominence in syndicated loan markets as well, with private credit funds stepping in alongside banks to support larger deals. Industry data indicates sustained demand across North America, Europe, and parts of Asia, driven by companies engaged in restructuring, expansion, or mergers.

Businesses exploring ABL often weigh the benefits against the operational requirements. The primary advantage lies in the ability to raise higher borrowing limits than unsecured loans typically allow, especially when receivables turn over quickly or inventory levels remain high. The structure also tends to support revolving access to capital, giving companies the flexibility to draw funds as needed. For firms navigating supply-chain adjustments or currency fluctuations, that liquidity can be critical.

However, ABL introduces its own complexities. Lenders generally require frequent reporting and audits to track asset values, and companies must maintain detailed documentation on receivables and inventory. Borrowing base formulas can change month to month, meaning firms need strong internal controls to manage availability. Some executives describe the oversight as rigorous but manageable, noting that transparency can also strengthen financial discipline. Costs can vary depending on the lender, asset quality, and monitoring requirements, and companies must factor in facility fees, interest margins, and collateral-evaluation expenses.

The choice of lender is typically shaped by industry expertise and the ability to structure tailored facilities. Major banks maintain established ABL divisions capable of serving large corporates, while specialised non-bank lenders have built reputations for speed and flexibility. Private credit firms are increasingly competitive in this space, offering customised terms to mid-market borrowers that may not fit traditional bank criteria. Businesses in sectors such as consumer goods, automotive supply chains, and electronics distribution often rely on lenders with deep understanding of inventory cycles and asset-quality assessment.

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ABL is also becoming a tool for companies undergoing transitional phases. Firms involved in acquisitions use it to finance working capital without diluting ownership, while distressed businesses use asset-backed lines to stabilise operations during recovery. Some companies blend ABL with term loans to build hybrid structures that match both short-term cash needs and long-term investment plans.

Technology is reshaping the landscape as lenders incorporate real-time data systems to track receivables and inventory, reducing risk and streamlining compliance. Automated collateral-monitoring tools allow lenders to assess exposure more accurately, while borrowers benefit from faster availability calculations and smoother reporting. Industry analysts say technology adoption is a significant driver of ABL's growth, lowering administrative burdens and making the facilities more attractive to companies with complex operations.

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