Since the explosion of middle-market company financing in the 1960s, asset-based lending (ABL) has become an increasingly popular form of finance. When it came to lending, this was an overlooked sector with small and medium sized enterprises – and even midcaps – underserved. That’s until innovative lenders began using the receivables, inventory, and fixed assets of a company as security for loans. The explosion brought forward a host of newer and more flexible providers, including invoice finance providers, leasing companies, specialist lenders and even private equity debt funds.
Since the 2008 global financial crisis, techniques such as ABL have grown further – finding ways to lend to companies suffering credit rejection from their constrained house banks and traditional lenders. Certainly, ABL has cemented its place as one of the most popular and stable forms of finance now available – although there remains room for further growth in this dynamic sector.
- The growth of “just in time” working practices has afforded ABL an opportunity to provide quick, accessible funding to fill the liquidity deficit in transaction that might otherwise be perceived as “too risky”.
- The next recession will provide a greater test of each structure given to a borrower due to the evolution of ABL as a lending technique since the 2008 crisis.
- If the correct due diligence has been undertaken when structuring the loan, ABL structures can survive, and even prosper, in a downturn.
- RedRidge Diligence Services is seen as a specialist with the ability to identify risks and undertake the tests required to give the lender comfort that all is properly represented by the borrower.