Working capital · Asset-based lending
Asset-Based Lending for Small and Mid-Sized Businesses: How ABL Works, Advance Rates and Costs
Asset-based lending (ABL) is a revolving line of credit sized by a formula on your receivables, inventory and sometimes equipment, rather than by your credit score or last year’s profit. It is how distributors, manufacturers, staffing firms and contractors with $1 million to $50 million in revenue borrow $250,000 to $10 million at rates far below revenue-based financing, and it is available to companies that banks turn down on cash flow alone. This guide explains how ABL works in October 2026, the advance rates and costs with Prime at 7.00%, who qualifies, and how it compares to factoring and conventional lines.
What Is Asset-Based Lending?
Asset-based lending is a secured revolving credit facility where the amount you can borrow at any time (the borrowing base) is a percentage of eligible collateral: typically 75% to 90% of accounts receivable under 90 days from creditworthy customers, 30% to 60% of finished-goods inventory and 50% to 80% of appraised equipment value. You draw and repay against that base as invoices are issued and collected, usually through a lockbox the lender controls. Facilities run $250,000 to $10 million and more, priced at Prime plus 1 to 7 (8% to 14% today) plus a monitoring or collateral management fee of $500 to $3,000 a month and an unused line fee of 0.25% to 0.5%. Because the collateral carries the credit, ABL approves companies with thin profits, a loss year, credit in the 600s or a recent turnaround, provided the receivables are good and the reporting is clean. It takes one to three weeks to set up, requires monthly or weekly borrowing base certificates and a field exam, and is cheaper than factoring at scale and far cheaper than revenue-based financing. Through RAN Funding, one application reaches asset-based lenders alongside bank lines and factoring so the three can be compared.
How an ABL Facility Works
- Collateral review and field exam: the lender tests your receivables aging, customer concentration, inventory counts and systems; two to five days on site or remote, $2,000 to $10,000.
- Borrowing base set: eligible A/R (under 90 days, no concentration above 20% to 30%, no affiliates or foreign accounts without insurance) at 75% to 90%; eligible inventory at 30% to 60% of cost, often capped at a share of the A/R availability; equipment at 50% to 80% of orderly liquidation value.
- Facility sized and documented: a revolving commitment of $250,000 to $10 million, a blanket UCC-1 lien, a lockbox or dominion-of-funds arrangement, covenants on reporting and sometimes on fixed-charge coverage.
- Draw and repay daily: customer payments hit the lockbox and pay the line down; you request advances against the updated base, usually funded the same day.
- Report: a borrowing base certificate weekly or monthly, A/R and A/P agings, inventory reports, financials quarterly; periodic field exams.
Compare the structure to factoring in invoice factoring vs business loans and to a conventional line in business line of credit.
Advance Rates and Costs in October 2026
| Collateral | Typical advance rate | Eligibility tests |
|---|---|---|
| Accounts receivable | 75% – 90% | Under 90 days; creditworthy B2B or government customers; concentration limits; no contras or disputes |
| Finished-goods inventory | 30% – 60% of cost (50% – 85% of NOLV) | Marketable, insured, at owned or landlord-waived locations; appraisal |
| Raw materials | 20% – 40% | Commodity-like, resalable |
| Work in process | 0% – 10% | Rarely eligible |
| Equipment | 50% – 80% of orderly liquidation value | Appraisal; titled or fixed assets |
| Real estate (in some facilities) | 50% – 65% of value | Appraisal; often a separate term loan |
| Cost element | Typical | On a $2 million facility |
|---|---|---|
| Interest | Prime + 1 to 7 (8% – 14%) | $80,000 – $140,000 per year if fully drawn |
| Collateral monitoring fee | $500 – $3,000 per month | $6,000 – $36,000 per year |
| Unused line fee | 0.25% – 0.5% on undrawn | $2,500 – $5,000 on $1M undrawn |
| Field exams | $2,000 – $10,000, 1 – 2 per year | $4,000 – $20,000 |
| Closing and legal | 0.5% – 1.5% of commitment | $10,000 – $30,000 |
| All-in cost | ~10% – 18% on average usage | Versus factoring 18% – 36% and revenue-based 30% – 80% APR equivalents |
Annual cost of $1 million of working capital, by product
ABL sits between a bank line and factoring on cost and well below revenue-based products; the collateral, not the credit score, earns the price.
Who Qualifies for Asset-Based Lending
- B2B or B2G businesses with invoiced sales: distributors, manufacturers, staffing, logistics, contractors, wholesalers, service companies.
- Receivables of $250,000 or more outstanding at any time, from a reasonably diversified customer base; most lenders want facilities of $250,000 to $500,000 minimum.
- Twelve or more months of operating history and reliable accounting (aged A/R and A/P, inventory records).
- Credit is secondary: owners in the 600s, a loss year or a turnaround are workable if the collateral and reporting hold up; tax liens and unresolved judgments are not.
- Not a fit: retail and restaurants (consumer sales, no receivables), businesses with one customer over 40% of sales, or anyone unwilling to report weekly.
Share of applicants fully approved, by product (Federal Reserve, 2026)
81% of applicants were approved for at least part of the request. Source: Federal Reserve Banks, 2026 Report on Employer Firms.
In the Federal Reserve’s 2026 survey, finance companies (which include asset-based lenders and factors) fully approved 50% of applicants, second only to small banks.
ABL vs Factoring vs a Bank Line
| Asset-based line | Invoice factoring | Bank line of credit | |
|---|---|---|---|
| Who collects from customers | You (lockbox to lender) | The factor | You |
| Customer aware? | Usually not | Usually yes (notification) | No |
| Sizing | Borrowing base on A/R, inventory, equipment | Per invoice | Cash flow and financials |
| Cost | 8% – 14% plus fees (~10% – 18% all-in) | 1% – 4% per 30 days (18% – 36% APR equiv.) | Prime + 1 to 4 (8% – 11%) |
| Minimum size | $250K – $500K | $10K – $20K | $10K |
| Credit needed | Secondary | Customers’ credit | 680+, 2 years, profit |
| Reporting | Weekly or monthly base certificates, field exams | Invoice submission | Annual review |
| Speed to set up | 1 – 3 weeks | 3 – 7 days | 2 – 6 weeks |
| Best for | $1M – $50M revenue, inventory-heavy, growth | Smaller B2B firms, slow payers, no reporting staff | Established, profitable, bank-ready |
When invoices are the only collateral and volume is under $250,000, factoring is simpler; see A/R financing. When the company is bank-ready, the bank line is cheaper. ABL is the middle: larger, inventory-inclusive and collateral-driven.
Common Questions
What is an example of asset-based lending?
A distributor with $1.5 million in receivables under 90 days and $800,000 of finished inventory gets a $1.5 million revolving line: 85% of eligible A/R ($1.275 million) plus 40% of inventory ($320,000), capped at the commitment. It draws against the base to buy stock and repays as customers pay into a lockbox, at Prime plus 3 (10.00% today) plus a $1,500 monthly monitoring fee.
Is asset-based lending cheaper than factoring?
Usually, at scale. ABL runs about 10% to 18% all-in on average usage against 18% to 36% APR equivalent for factoring, because the lender advances against a pool rather than buying each invoice and you keep collections. Below $250,000 in receivables, factoring’s simplicity and lower minimums often win.
Can I get asset-based lending with bad credit?
Often. ABL lenders underwrite the collateral and the reporting; owner credit in the 600s, a loss year or a recent turnaround are workable. Unresolved tax liens, judgments and poor records are the disqualifiers, not the score.
What is a borrowing base?
The amount available to draw at any time, calculated as eligible receivables times the A/R advance rate plus eligible inventory times the inventory advance rate (plus equipment if included), less reserves. You report it on a borrowing base certificate weekly or monthly, and the lender audits it in field exams.
How long does it take to set up an asset-based line?
One to three weeks from application to first draw: a few days for the field exam and appraisal, a week for documentation, lockbox and UCC filing. Renewals and increases are faster.
Is RAN Funding a lender?
No. RAN Funding is a business financing broker. We present your application to our lender network and show you the offers you qualify for; the funding partner sets the approval, amount, rate, fees and terms.
Sources
- 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey — Federal Reserve Banks
- H.15 Selected Interest Rates (bank prime loan rate 7.00%) — Board of Governors of the Federal Reserve System
- Small Business Lending Survey, Second Quarter 2026 (released September 24, 2026) — Federal Reserve Bank of Kansas City
- Asset-based lending overview — Secured Finance Network
See What You Qualify For
One application, about five minutes, soft pull only. A funding specialist tells you up front which products fit your file, what they cost and how fast each one funds.
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