Asset Based Lender: Asset Based Lenders, frequently abbreviated ABL, specialize in making loans to companies that may not be able to qualify for the loans based on their income and cash flow. In contrast to traditional commercial banks (though many ABLs are affiliated with banks) ABLs focus on assets.
Underwriting criteria of ABLs vary meaningfully, but they will generally lend up to 70 or 80 percent of company's eligible accounts receivable (A/R) and up to 50 percent (at most) of eligible inventory.
Eligible A/R will typically include accounts due from commercial customers with a good payment history; eligible A/R will typically exclude past due accounts and consumer accounts. Adjustments are typically made for concentration, that is, having more than a threshold percentage of A/R due from a single customer.
Eligible inventory will typically only include finished goods inventory, located in domestic warehouses, excluding obsolete inventory, inventory in transit, work in process inventory and most raw materials.
ABLs are key players in the successful execution of leverage buyouts (LBOs) or management buyouts (MBOs), where the new structure of the company may not give a traditional bank the comfort to lend.
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