Cashflow vs ABL Lenders for Deal Financing

February 24, 2025

by an member from University of Washington in Mount Vernon, WA, USA

Hello all,

What is your experience working with cash flow versus ABL lenders? We're looking at a couple of deals where the cash flow is too meager for a regular SBA, but there are significant assets under management that we suspect could help us finance the deal. However, I haven't worked with ABL lenders before and don't know how to approach deals with them in mind.

If you have worked with both before, it would be helpful if you could share your experiences or what we should know or keep in mind when considering ABL-financed deals.

Reply by a professional
from Bishop's University in Moncton, NB, Canada

Not only do ABL lenders loan less as a percentage of value, their definition of value may also be different. For example, a bank might finance 75-90% of a new machine acquisition for a good, profitable client. An asset-based lender might finance the same percentage, but they may do it based on Orderly Liquidation Value. So make sure you understand what value they're using when they tell you how much they'll finance. Regardless of the value of the assets, they'll want to see a plan on how you'll make the payments. They don't want to have to liquidate. It's always a losing proposition.

Reply by a professional
from Brown University in New York, NY, USA

ABL loans can be just as good as cash flow or term loans, but do have differences. They have a borrowing base that you can draw from, a percentage of assets (ex. accounts receivable), and the loan is not a lump sum term loan. ABL's typically have more reporting requirements (including additional field exams), but the rates can be similar. For smaller businesses where the parts are sometimes greater than the sum, an ABL can be a good option.

+14 more replies.

Join the discussion