Business inventory used as collateral for asset-based lending
Accountant reviewing accounts receivable for asset-based financing

Asset-Based Lending (ABL): Leverage Your Assets for Capital

Key Takeaways: SBA Asset-Based Lending with Khojie

  • What is Asset-Based Lending? Asset-based lending (ABL) is a type of financing where businesses borrow money using their assets as collateral. These assets can include inventory, accounts receivable, equipment, or real estate.
  • Who is it for? Businesses that need working capital but may not qualify for traditional loans due to cash flow limitations or lack of credit history.
  • How does it work? Lenders assess the value of your assets and provide a loan based on a percentage of that value. Repayment terms are often flexible.
  • Why choose SBA-backed ABL? The Small Business Administration (SBA) guarantees these loans, making them more accessible and affordable for small businesses.
  • Common uses: Funding inventory purchases, covering operational expenses, financing expansion projects.

1. What Exactly Is SBA Asset-Based Lending?

Asset-based lending allows businesses to leverage their existing assets—such as inventory, accounts receivable, equipment, or real estate—to secure funding. Instead of relying on credit scores or profit margins, lenders focus on the value of these assets.

SBA-backed asset-based loans come with significant benefits. Since the SBA guarantees a portion of the loan, lenders face reduced risk, which translates into lower interest rates and more favorable terms for borrowers. To learn more about SBA guarantees, check our SBA Business Loans overview.

How Does It Compare to Other Loan Types?

Loan Type Collateral Needed? Focus Best For
Traditional Bank Loan Sometimes Credit Score & Profit Established businesses
Merchant Cash Advance No Future Sales Quick short-term funding
Asset-Based Lending Yes Value of Assets Businesses needing flexibility

2. Who Should Consider SBA Asset-Based Loans?

SBA asset-based loans are ideal for businesses that may struggle to obtain traditional financing. This includes companies experiencing:

  • Cash flow fluctuations
  • Credit history challenges
  • Seasonal revenue cycles

For example, a manufacturing business with high inventory levels but inconsistent cash flow can leverage inventory to secure funding without liquidating assets. Similarly, a retail store facing a slow season can use unsold stock as collateral to cover payroll and operating expenses.

If your business needs funding for seasonal operations, you might also want to explore our Working Capital Loans as an alternative option.

Pro Tip: Startups and rapidly growing businesses can benefit from asset-based lending, as approval is based more on asset value than financial history.

3. How Do SBA Asset-Based Loans Work?

Step 1: Identify Your Collateral

Eligible assets include:

Step 2: Loan Valuation

Lenders assess your assets and determine a loan amount, typically ranging from 70% to 90% of the appraised value. For example, if your inventory is valued at $100,000, you could secure a loan of $70,000 to $90,000.

Step 3: Flexible Repayment Terms

Repayment terms depend on the lender and asset type. Some require fixed monthly payments, while others allow repayment as you generate revenue from the assets.

Because the SBA guarantees a portion of the loan, lenders offer more competitive rates and terms compared to non-SBA alternatives. Learn more about specific SBA options through our SBA 7(a) and SBA 504 loan programs.

4. Benefits of Choosing SBA Asset-Based Lending

  • Increased Flexibility: Unlike traditional loans with rigid terms, asset-based lending provides adaptable repayment structures tailored to your cash flow. For even more flexibility, you might also consider a Business Line of Credit.
  • Accessible Funding: Since approval focuses on asset value rather than solely credit scores, businesses facing financial hurdles or with limited credit history can often qualify.
  • Faster Approval Process: Compared to the weeks or months often required by traditional bank loans, SBA ABL through partners like Khojie can provide funding much faster, sometimes within days.
  • Competitive Rates: Thanks to the SBA guarantee reducing lender risk, borrowers typically benefit from lower interest rates and more favorable terms compared to non-guaranteed ABL options.

5. Potential Drawbacks to Consider

  • Appraisal Fees: Lenders require asset valuation, which can result in upfront costs.
  • Risk of Asset Loss: Since the loan is secured by collateral, failure to repay could result in asset forfeiture.
  • Not All Assets Qualify: Outdated equipment or obsolete inventory may not be eligible for financing.

If these drawbacks concern you, explore our Merchant Cash Advance or Revenue-Based Financing options, which don't rely on physical assets as collateral.

6. How to Apply for an SBA Asset-Based Loan

Step 1: Gather Documentation

Prepare records such as:

  • Inventory lists
  • Accounts receivable aging reports
  • Equipment valuation reports
  • Business financial statements

Step 2: Choose a Lender

Select an SBA-approved lender specializing in asset-based loans. Khojie partners with a network of experienced ABL lenders. For specialized SBA lending, see our SBA Business Loans overview.

Step 3: Submit Your Application

Include required documentation and collateral details. Once approved, funding is typically disbursed quickly.

Not sure which financing option is right for your business? Take our funding quiz to find the best match for your needs.

Unlock Capital with Your Assets!

Leverage your inventory, receivables, or equipment to get the working capital you need. Explore flexible SBA-backed Asset-Based Lending options with Khojie.

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