Frequently Asked Questions (FAQ)
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With tradition lending, bankers typically perform a cash flow analysis as the foundation for providing a loan. However, with ABL, the company’s collateral or assets which serve as collateral are the primary emphasis with underwriting, more so than cash flow leverage.
Asset based lending is a specialized loan product, including both formula ABL and stretch ABL. Loans are based on the assets pledged as collateral and are structured to provide a flexible source of working capital, and in some instances, fixed asset financing, by monetizing assets on the balance sheet.
Stretch ABL is a credit facility where the revolving credit (e.g. line of credit) is governed by formula ABL advance rates and controls, but a portion of the financing embedded in the term loan is under-secured based upon application of an appropriate asset-based lending advance rate to fixed asset collateral.
Formula ABL is a fully collateralized credit facility, based upon asset-based lending advance rates, which utilizes ABL controls.
