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 Series a Funding and how does it Work?
Read More »: What is Series a Funding and how does it Work?Series A funding is the first institutional investment round for startups that have validated their product-market fit and are ready to transition into scalable growth. Typically involving raises between $2 million and $15 million, this capital is used to expand…
-
What Services do Energy Mergers and Acquisitions Advisory Firms Provide?
Read More »: What Services do Energy Mergers and Acquisitions Advisory Firms Provide?As a Boutique M&A and Capital Advisory Firm, we provide a comprehensive suite of services designed to guide energy companies and institutional investors through complex buy-side, sell-side, and capital-structure transactions. We apply a Full-Cycle M&A methodology that covers every phase…
-
How do I Choose the Right M&a Advisor for my Energy Company?
Read More »: How do I Choose the Right M&a Advisor for my Energy Company?Selecting the right advisor for an energy company requires a partner who possesses deep sector fluency and a comprehensive understanding of both traditional oil and gas mergers and the evolving renewable energy landscape. As a Boutique M&A and Capital Advisory…
-
How Much do M&a Due Diligence Services Cost?
Read More »: How Much do M&a Due Diligence Services Cost?While we provide premium, boutique M&A and capital advisory services, the total cost of due diligence depends on the complexity, scope, and duration of the transaction. Because we take a comprehensive approach to Full-Cycle M&A, the investment required reflects the…
-
What does M&a Due Diligence Typically Involve?
Read More »: What does M&a Due Diligence Typically Involve?As a Boutique M&A and Capital Advisory Firm, we approach M&A due diligence as a rigorous, three-phase process designed to mitigate risk and uncover hidden value. Our Full-Cycle M&A advisory ensures that every transaction is supported by data-driven confidence. Typically,…