TL;DR: Asset-based lending (ABL) is financing secured against a company's assets, such as receivables, inventory, or equipment. The amount available is tied to the value of those assets through a borrowing base. It differs from growth lending, which underwrites a company's revenue trajectory rather than its collateral.
Asset-based lending provides capital secured by specific company assets. The lender advances funds against a borrowing base, a calculated value of eligible assets such as accounts receivable and inventory, and the available credit rises and falls with that asset value. Because the loan is backed by collateral the lender can claim, ABL is often available to companies that may not qualify for unsecured financing.
ABL is well suited to businesses with substantial tangible assets or large, reliable receivables. It is less suited to asset-light software companies, whose value lies in recurring revenue and growth rather than in inventory or equipment.
The core difference is what is being underwritten. ABL underwrites collateral: the loan size follows the value of the assets. Venture debt and other growth lending underwrite the business itself: revenue quality, growth rate, retention, and trajectory. For a high-growth software company with few hard assets but strong recurring revenue, growth lending is usually the better fit, because the financing is sized to the business rather than to a thin asset base.
What assets can secure an ABL facility? Commonly accounts receivable and inventory, and sometimes equipment or other tangible assets, each advanced at a percentage of its eligible value.
Why might a software company prefer venture debt to ABL? Because software businesses are typically asset-light. Venture debt is sized to revenue and growth, which suits them better than a facility limited by collateral value.
Related terms: Private Credit · Venture Debt · Working Capital · Senior Debt
