In asset-based lending (ABL), financing is secured by specific tangible assets on a company’s balance sheet. Lenders focus on the liquidation value and quality of these assets to determine borrowing capacity. The four primary types of business assets typically accepted as collateral include:
- Accounts Receivable: These are considered the most liquid and preferred collateral class. Because they convert into cash through normal collection cycles, they typically command the highest advance rates (70%–90%). Lenders evaluate them based on aging reports and customer concentration.
- Inventory: This includes finished goods, raw materials, and work-in-progress. Inventory is subject to third-party appraisals to account for obsolescence and turnover velocity, with typical advance rates ranging from 40%–60%.
- Equipment: Machinery and vehicles are valued based on their orderly liquidation value. Lenders generally extend 50%–80% of the appraised value depending on the age, condition, and secondary market demand for the equipment.
- Real Estate: While this is the slowest asset class to fund due to the need for title searches and environmental assessments, it offers substantial long-term value. Typical advance rates for real estate fall between 60%–75% of the appraised value.
In some complex transactions or M&A scenarios, certain structures may also accommodate intellectual property as a specialized form of collateral.
Related FAQs
-
What is Sell-side M&a Advisory?
Read More »: What is Sell-side M&a Advisory?Sell-side M&A advisory is a specialized service that guides business owners and founders through the complex process of selling their company or divesting a business unit. As a Boutique M&A and Capital Advisory Firm, we provide a structured, data-driven methodology…
-
How do I Prepare for Sell-side Due Diligence?
Read More »: How do I Prepare for Sell-side Due Diligence?Preparing for a sell-side transaction requires a disciplined, multi-stage approach to ensure your business is positioned for maximum value and a smooth exit. At Zaidwood Capital, we recommend beginning this preparation at least six to twelve months before you intend…
-
How do I Conduct Buy-side Due Diligence?
Read More »: How do I Conduct Buy-side Due Diligence?To conduct successful buy-side due diligence, we follow a systematic, multi-dimensional investigation that serves as the foundation for risk mitigation and value confirmation. This process goes far beyond a simple financial review to ensure every aspect of a potential acquisition…
-
What is the Buy-side M&a Process?
Read More »: What is the Buy-side M&a Process?The buy-side M&A process is a disciplined, multi-stage framework that acquirers use to identify, evaluate, and close strategic acquisitions. As a Boutique M&A and Capital Advisory Firm, we utilize a structured sequence to ensure every transaction advances your long-term growth…
-
How Much Equity do Startups Typically Give up in a Series a Round?
Read More »: How Much Equity do Startups Typically Give up in a Series a Round?In a typical Series A funding round, the new capital investment generally results in founders and early stakeholders giving up between 20% and 35% of the company’s post-money equity. This dilution is driven by two primary factors: the direct equity…