What Is Asset-Based Lending? Inventory as Collateral

Asset-based lending (ABL) is lending against the value of a company’s assets, chiefly accounts receivable and inventory, through a borrowing base. Instead of qualifying you on projected cash flow, an asset-based lender sizes your credit line off collateral you already hold. Your assets set your credit limit, and for a product company, inventory is one of the core ingredients.

That mechanic is what makes ABL practical for growing, seasonal, and asset-heavy businesses. If you supply a big-box retailer and hold stock or unpaid invoices, your available credit rises as those assets grow.

This guide explains what asset-based lending is, how the borrowing base works, and where inventory fits as collateral. For the head-to-head decision between ABL and other working capital structures, we point you to a dedicated comparison rather than repeating it here.

What Asset-Based Lending Is

Asset-based lending (ABL) is a form of business financing secured by a company’s assets, chiefly accounts receivable and inventory, through a borrowing base. The lender advances a percentage of each eligible asset’s value, and that total sets how much you can borrow.

Most ABL facilities are revolving lines of credit rather than fixed-term loans. As you generate receivables and build inventory, more collateral becomes available and your borrowing capacity rises.

As customers pay and stock sells through, the balance pays down and capacity resets. The Journal of Accountancy describes the same cycle: the security interest in receivables and inventory creates the borrowing base, and as receivables are collected, the cash pays down the loan.

This is a meaningful market, not a niche product. According to the Secured Finance Network’s 2025 Market Sizing Study, asset-based lending commitments reached roughly $537 billion at year-end 2024, and ABL commitments have grown every year since 2018.

The defining feature is simple. The value of what you own, not the strength of your income statement, drives how much you can draw.

The Borrowing Base Explained

The borrowing base is the heart of asset-based lending. It answers one question: how much can you actually borrow right now? The formula is straightforward.

Eligible assets × advance rates = borrowing base (your available credit).

An advance rate is the percentage of an eligible asset’s value that the lender will lend against. Two asset classes usually make up the base, each with its own rate:

• Accounts receivable: advanced at roughly 70% to 90% of eligible invoices, per the OCC’s Comptroller’s Handbook.
• Inventory: advanced at up to roughly 65% of book value or 80% of NOLV, and often lower.

Here is a worked example. Say you carry $1,000,000 in eligible receivables and $500,000 in eligible inventory. With an 85% advance rate on receivables and a 60% advance rate on inventory, your borrowing base looks like this:

1. Receivables: $1,000,000 × 85% = $850,000
2. Inventory: $500,000 × 60% = $300,000
3. Total borrowing base: $1,150,000

You could draw up to $1,150,000, subject to the overall line limit and underwriting. This structure matches the illustration in the Journal of Accountancy, which uses an 85% advance rate on eligible receivables and a 60% rate on eligible inventory in its own borrowing base computation.

Because the base recalculates as your assets move, most lenders require a periodic borrowing base certificate, weekly or monthly, that reports current eligible collateral. Your credit line breathes with your business. Land a large order and build stock, and availability climbs. Ship the order and collect payment, and the line pays down.

How Inventory Fits as Collateral

Inventory is a core collateral class in ABL, but lenders treat it more cautiously than receivables, and the advance rate reflects that. A receivable only has to be collected. A unit of inventory may still need to be finished, then sold, then collected before it turns into cash. That extra distance to cash is why inventory is advanced at a lower rate.

Three factors shape how much your inventory contributes to the borrowing base.

Eligible versus ineligible inventory. Lenders count only inventory they can realistically sell. Finished goods and commodity-like raw materials usually qualify at the highest rates. Work-in-process, obsolete stock, slow-moving SKUs, and goods subject to a supplier’s lien are often excluded or discounted.

Net orderly liquidation value (NOLV). Lenders do not advance against book value or retail value. They advance against NOLV, the amount an appraiser estimates the inventory would fetch in an orderly sale, which is typically below book value.

The advance rate then applies to that appraised figure. Per the OCC’s Comptroller’s Handbook on asset-based lending, inventory has traditionally been structured with advance rates around 80% of NOLV, with competition sometimes pushing rates higher depending on the collateral and borrower.

Appraisals and field exams. Because collateral value can shift, ABL lenders monitor it. They order third-party inventory appraisals and run periodic field exams to confirm that the collateral exists, is eligible, and is valued correctly.

The OCC handbook notes that advance rates on inventory are usually lower than those on receivables precisely because inventory is less liquid: a good in inventory may need to be finished, sold, and paid for, while a receivable need only be collected.

The takeaway for a product business: clean, well-documented, sellable inventory supports more borrowing. Aged or hard-to-move stock supports less. For a deeper look at borrowing specifically against stock you already own, see our guide to inventory financing for retail suppliers.

ABL vs Traditional Lending

The core difference is what the lender underwrites. Traditional bank loans are cash-flow lending: the lender sizes the loan on your historical and projected earnings, then sets a fixed amount and repayment schedule. Asset-based lending sizes the facility on collateral, and availability flexes as that collateral grows or shrinks.

That distinction matters for the businesses ABL fits best.

A profitable company with predictable earnings may qualify comfortably for a cash-flow loan. A fast-growing supplier with thin or uneven profits often cannot, even when it holds substantial receivables and inventory. ABL is built for that second profile. It lends against the assets a growth-stage business actually has, and the line expands as the business scales.

This is also why ABL suits seasonal operators. When you build inventory ahead of a peak selling season, your borrowing base rises with the stock, then pays down as you sell through. The financing tracks the cycle instead of fighting it.

When to Choose ABL

Asset-based lending fits businesses that carry significant receivables or inventory and need credit that grows with them. Common profiles include:

• Growing product companies whose sales are scaling faster than their profit history can support on cash flow alone.
• Seasonal suppliers who build inventory ahead of peak demand and repay as stock sells through.
• Asset-heavy operators with strong collateral but uneven or thin margins.
• Businesses in transition managing rapid growth, a turnaround, or a large new retail program.

ABL is usually a weaker fit if you hold few hard assets, run an asset-light or service model, or need a small fixed amount that a term loan handles more simply.

ABL is one of several working capital structures, and it often gets weighed against purchase order financing, inventory financing, and accounts receivable financing. Those tools solve different timing problems, and the right choice depends on where your cash gap sits in the order cycle.

We keep this page definitional on purpose. For the full head-to-head, see our comparison of PO financing vs. inventory financing vs. ABL vs. AR financing, which walks through which structure fits which situation.

Getting to a Term Sheet

Asset-based lending turns the assets you already hold into working capital, sized by a borrowing base and anchored by your receivables and inventory. Once you understand advance rates and how inventory is valued at NOLV, the rest is preparation: clean collateral reporting, current receivables aging, and inventory records an appraiser can verify. The better documented your assets, the more the borrowing base can support.

If you supply big-box retailers and want to see what your assets can fund, Bridge Marketplace connects CPG brands and retail suppliers with a network of vetted inventory and working-capital lenders. Submit one request and compare competing term sheets, subject to underwriting. Request financing.

FAQs

What is asset-based lending in simple terms?

Asset-based lending is a loan secured by your business assets, mainly accounts receivable and inventory, rather than by your cash flow. The lender advances a percentage of each eligible asset’s value, and the total sets your credit limit. Most ABL facilities are revolving lines, so your available credit rises and falls with your collateral.

How does inventory work as collateral in ABL?

Lenders advance against eligible inventory at its net orderly liquidation value (NOLV), the amount an appraiser expects it would sell for in an orderly sale, which is usually below book value. Finished goods and commodity raw materials typically qualify at higher rates; work-in-process, obsolete, or slow-moving stock is often excluded. Advance rates on inventory generally run lower than on receivables because inventory is less liquid.

What is a borrowing base and how is it calculated?

A borrowing base is the amount you can currently borrow under an ABL facility. It equals your eligible assets multiplied by their advance rates. For example, $1,000,000 in receivables at an 85% advance rate plus $500,000 in inventory at a 60% rate produces a borrowing base of $1,150,000. Lenders recalculate it regularly through a borrowing base certificate.

What are typical advance rates for receivables and inventory?

Per the OCC’s Comptroller’s Handbook, accounts receivable are commonly advanced at 70% to 85% of eligible invoices, with some lenders going up to 90% for strong business-to-business receivables. Inventory is typically advanced at up to 65% of book value or 80% of NOLV and often lower. Actual rates depend on collateral quality, appraisal results, and the lender. These are typical industry ranges, not quotes; every facility is sized in underwriting.

How is ABL different from a traditional bank loan?

A traditional bank loan is cash-flow lending, sized on your earnings and set at a fixed amount. Asset-based lending is sized on collateral, so your available credit flexes as receivables and inventory grow or shrink. That makes ABL a better fit for growing, seasonal, or asset-heavy businesses that may not qualify on cash flow alone.