Asset-Based Lending (ABL)

ABL focuses on loans where repayment is supported by identifiable collateral rather than enterprise value. For allocators, ABL is attractive when it offers controlled downside—but only if collateral monitoring and enforcement are real.

How allocators define ABL exposure

Segmentation includes:

• Collateral type: A/R, inventory, equipment, IP, contracts
• Advance rates: how much is lent against collateral value
• Monitoring: reporting cadence, audits, borrowing base controls
• Counterparty risk: obligor concentration and payment behavior
• Legal enforceability: lien perfection, jurisdiction, repossession reality
• Servicing capability: workout, collections, asset liquidation

Allocator framing:
“Is collateral value observable, monitorable, and collectible in stress?”

Core strategies within ABL

• Receivables financing: dependent on obligor quality and dilution controls
• Inventory lending: higher volatility; strong controls required
• Equipment finance: clearer collateral, depreciation risk
• Contracted cash-flow lending: underwriting contract quality and churn

How ABL fits into allocator portfolios

Used to:

• Generate contractual income with structured downside protection
• Add diversification versus sponsor-backed direct lending
• Build niche credit sleeves with idiosyncratic return drivers

How allocators evaluate managers

Conviction increases when managers show:

• Strong borrowing base controls and audit discipline
• Conservative advance rates and haircuts
• Proven servicing and recovery execution
• Transparent collateral performance metrics (dilution, churn, roll rates)
• Limits on obligor and sector concentration

What slows allocator decision-making

Common blockers:

• Collateral that is hard to value or enforce (in practice)
• Weak monitoring systems or low audit frequency
• Overconcentration in a few obligors or industries
• Overstated recovery assumptions and liquidation timelines

Common misconceptions

• “It’s collateralized so it’s safe” → collateral can be illiquid or contested.
• “ABL is uncorrelated” → obligor concentration can create hidden correlation.
• “Advance rates are standardized” → they’re only as good as monitoring.

Key allocator questions

• How often do you audit collateral and adjust advance rates?
• What are historical recoveries by collateral type?
• How do you handle obligor disputes, dilution, and fraud risk?
• What’s the liquidation timeline in stress?
• What systems ensure borrowing base integrity?