Asset-based lending: how it works, and whether your company is big enough

Asset-based lending means borrowing against things your company already owns: your sales ledger, your stock, your plant and machinery, sometimes a freehold. A lender values each class, advances a percentage against each one, and adds the results up. That total is what you can draw, and it moves as your assets move.

It is not asset finance, although the two names get used as though they were interchangeable. Asset finance pays for one new asset you are buying, and that asset is the security. Asset-based lending – sometimes shortened to ABL – releases cash from assets you have already paid for. And it is built for bigger companies than most people expect. On the criteria UK lenders publish, the floors run from a £2m minimum facility up to £50m of turnover.

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Asset-based lending and asset finance are not the same thing

Lloyds states the distinction plainly on its own product page. Asset finance, it says, 'is a separate form of lending and is either a hire purchase or lease product. Asset Finance is used when the client is looking to finance a new or used business critical asset.'

So the two products run in opposite directions. Asset finance is money going out to buy a machine, and the machine secures it. Asset-based lending is money coming back out of the machines, the stock, and the invoices you have already paid for.

The official taxonomy agrees: the British Business Bank's Growth Guarantee Scheme treats term loans, overdrafts, asset finance, invoice finance, and asset-based lending as five separate product categories, each with its own minimum facility and term limits.

The cost of mixing them up is weeks. A director who wants to release £150,000 from a paid-for excavator does not need an asset-based facility. They need releasing cash from a single machine you already own, which is a refinance or a sale and leaseback, takes days rather than weeks, and does not put a charge over the rest of the business.

Plenty of other borrowing is secured on an asset without being asset-based lending either – a commercial mortgage, a bridging loan, a development facility, hire purchase, a finance lease. All secured, none of them sized by a borrowing base.

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How lenders work out what you can borrow

Each asset class is valued, discounted, and added up. Shawbrook describes the mechanism in one sentence: 'Each asset is assessed for quality, liquidity, and valuation. These assessments form the borrowing base, which determines the size of the facility.'

The discount applied to each class is the advance rate, and it decides everything. Most lenders treat theirs as commercially sensitive. NatWest publishes its:

Metro Bank and Santander publish rates in the same region, both advancing up to 90% against receivables and up to 85% against stock. All three add the same caveat: the rates are agreed deal by deal and are subject to review.

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Why a freehold gets a lower advance rate than an invoice

That ordering inverts what the assets are worth: a £400,000 freehold raises less, proportionally, than a £400,000 invoice ledger. An advance rate is not a measure of value. It measures how quickly and reliably the asset turns into cash if the lender ever has to sell it. A receivable is money a solvent customer owes you next month. A freehold takes months to sell, and the price at the end is a guess until someone bids. The British Business Bank puts it simply: the discount 'represents the costs of converting the collateral to cash and its potential loss in market value'.

So a higher advance rate means the lender is taking more risk, not less. It has lent more against the same security. Stock is the clearest case: in the UK it is valued at the lower of cost price or expected sale price less the costs of completing and selling it, and work in progress is usually left out altogether.

One structural rule sits on top of the rates and bites harder than any of them. NatWest states, twice, that 'the term loan element will generally not exceed 50% of the total ABL facility'. Receivables and stock are the revolving legs; plant and property are the term legs. So your freehold and your machinery cannot carry a facility on their own, however much they are worth.

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What £1m of assets actually borrows

Take an engineering company with £100,000 of receivables, £100,000 of stock, £400,000 of plant, and £400,000 of property. It is asset-rich and ledger-light on £1m of assets, which is a very ordinary shape for a manufacturer.

Then apply the 50% cap. The revolving legs come to £165,000, so the term legs are capped at £165,000 as well, and the facility is £330,000 – not £805,000. Four fifths of the company's asset value is sitting outside the borrowing base, not because the assets are poor but because the ledger is small.

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The limit moves after you have signed

An overdraft limit is a number. A borrowing base is a calculation, rerun as your assets change. HSBC says funding levels are 'linked to asset values' and 'grows dynamically as the value of your assets increases'; Shawbrook says the facility 'flex[es] in line with asset levels and trading activity'.

Growth is the half of that lenders put on their websites. It shrinks too. A quiet quarter, a stock write-down, a customer going into administration, or a revaluation coming back lower than the last one all reduce what you can draw, and they reduce it without anyone making a decision. Metro Bank spells out one trigger: if an invoice is not paid within the agreed period, 'typically 90-120 days', you repay the lender for it directly.

Victoria Simpson runs VCare Group, a social care business in the north west. Local authorities take 30 to 60 days to pay her while 200 staff need paying every month. She had a facility against her receivables before she came to us, and this is what living with one was like:

'I felt like we were playing with monopoly money. We were looking at two different percentages, and you only draw down part of it. I always found it hard to know where I actually stood.'

That is the borrowing base described from the inside, and it is not a complaint about a bad lender. It is what a facility that recalculates itself feels like to run.

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Who asset-based lending is actually for

Mostly, not small companies. Every UK provider that publishes a criterion publishes a large one:

• HSBC: 'typically with turnover in excess of £50m and a funding requirement of £15m and above'.
• Lloyds: 'a business with a projected annual turnover of £10 million plus'.
• Shawbrook: 'facilities from £5m - £50m', for 'mid-market businesses with an established track record', trading in the UK for at least two years.
• Metro Bank: 'a minimum facility of £2 million applies'.
• The British Business Bank: lenders 'typically provide facilities of £5 million or more', though 'some providers will also offer facilities worth £1 million and above'.

The engineering company above, with its £330,000 borrowing base, is not close to any of those, and it is not being judged harshly. The legal work, the valuations, and the monitoring cost a lender roughly the same whether the facility is £300,000 or £3m, which is why the floors exist.

The floors are also rising rather than falling. In its Small Business Finance Markets 2025/26 report the British Business Bank records that one large bank withdrew its factoring product in 2025, and that 'several other large banks either [exited] factoring completely or [tightened] criteria such as increasing the minimum facility size'. Over the first three quarters of 2025, average advances to smaller businesses fell 8% year on year while the whole market grew by about 5%. The money is moving towards larger clients.

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You need a business-to-business sales ledger

This is the condition that disqualifies most hopeful applicants, and it is almost never stated on an explainer page. Metro Bank: 'All ABL facilities must include an Invoice Finance (debtors) element.' Aldermore: the facility 'works in conjunction with an invoice finance facility which will be required'. Lloyds lists 'selling business-to-business and on credit terms' as an eligibility criterion, and HSBC asks for 'selling on open account to other businesses'.

So the receivables leg is the foundation and the rest is built on top of it. If you sell to consumers, or for cash, there is no ledger to lend against, and the plant and the freehold cannot stand up a facility on their own – that 50% cap again. If that is you, borrowing against your unpaid invoices is the narrower version of the same idea, and funding stock ahead of a busy season is usually more straightforward than either.

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What about a patchy credit record?

There is a grain of truth in the idea that asset-based lending cares less about credit history, because the decision leans more on what the assets are worth than a cash flow lender's would. But it is not a route round a weak balance sheet. Shawbrook wants a 'positive trading trajectory'. Metro Bank asks for audited and management accounts, financial forecasts, aged debtors and creditors, a stock listing, and a fixed asset register before it will quote.

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What it costs, and why nobody will tell you

No UK asset-based lender publishes a rate. Lloyds says outright that 'every facility is priced on a deal-by-deal basis and will vary depending on the quantity, quality and eligibility of assets put forward as security, coupled with the credit rating'. NatWest says only that 'product fees may apply'.

What is published is the shape. Metro Bank charges 'a variable rate charged over Metro Bank Base Rate', calculated daily on the balance outstanding, separately for the invoice finance leg, the stock leg, and the plant, property and cash flow legs. So the headline cost is a margin over a reference rate rather than a fixed annual percentage. The Bank of England Bank Rate has been 3.75% since 18 December 2025, and a lender's own base rate tracks it.

Then come the fees, and on an asset-based facility there are more of them than on most borrowing:

• Arrangement fee, payable on completion. Metro Bank describes it as 'individually negotiated', as it does its facility increase fee and its annual fee.
• Service or monitoring fee, charged monthly for running the ledger and watching the stock.
• Valuation fees, for the professional valuations required on stock, machinery, and commercial property. These are paid by you, and so is every subsequent revaluation.
• Legal fees, for drafting the debenture, the due diligence and registering the charges.
• Non-utilisation fees, charged by some lenders on the part of the limit you have not drawn.

Nobody publishes the size of any of them, so the only honest advice is to ask for all five in writing before you sign heads of terms, and to add up the first-year total rather than comparing margins.

Asset-based lending to a limited company is not a regulated activity, which is worth knowing when you compare paperwork. Shawbrook states it plainly: 'our Asset Based Lending is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority'.

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What you sign, and what it does to your company afterwards

The security on an asset-based facility is not a charge over the particular things being funded. It is, in Shawbrook's words, a 'senior all asset debenture', and 'parental and cross guarantees may also be required'.

A charge over your assets is a security interest your company creates over its property to secure a debt. A debenture typically contains two kinds: fixed charges over identified assets like the freehold and the plant, and a floating charge over everything else, which hovers over a changing pool – stock, book debts, intellectual property – until something goes wrong and it settles on whatever is there.

Three things follow from that.

It becomes public, fast. Under section 859A of the Companies Act 2006, the charge must reach Companies House within 21 days, counted from the day after it was created, along with a certified copy of the instrument that created it. From then on it is on your company's public record for anyone to read. Miss the deadline and section 859H makes the charge void against a liquidator, an administrator and any creditor – and the money it secured becomes immediately repayable. Only a court can extend the time.

It changes what you can borrow next. A debenture usually carries a negative pledge, which stops you offering the same assets as security to anyone else. In practice an all-asset debenture takes your balance sheet off the table, and the next lender either takes a junior position, asks the first lender's permission, or declines.

We see this from the other side. When a company applies to us, we pull its charge register from Companies House, and the detail we take includes whether a charge contains a fixed charge, whether it contains a floating charge, whether that floating charge covers all of the company's property, whether the instrument carries a negative pledge, and whether the charge is still outstanding or has been satisfied. A facility signed in 2024 is still legible to us, in that detail, in 2026. Our read of it: the constraint usually costs a growing company more flexibility than directors expect when they sign, because the facility is sized for the business you are now rather than the one you are building.

Which makes one thing worth doing if you have ever had a secured facility. Companies House does not require you to tell it when a charge has been paid off, but warns that 'any satisfied charges left outstanding on our records could have a negative effect on your company'. Filing form MR04 is free, and an old charge still showing as outstanding is an avoidable reason for a slower answer somewhere else.

It gives the lender a short route to control. Under paragraph 14 of Schedule B1 to the Insolvency Act 1986, the holder of a qualifying floating charge over the whole or substantially the whole of a company's property can appoint an administrator without applying to court. An all-asset debenture is drafted to qualify.

Lenders push for fixed charges over the valuable classes for a reason. A floating charge is subordinated three times by statute – to the expenses of a winding up, to preferential debts, and to the part of the net property reserved for unsecured creditors – and none of those provisions touches a fixed charge. If your lender argues about whether your book debts sit under a fixed or a floating charge, that asymmetry is what the argument is about.

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Asset-based lending, cash flow lending, or an unsecured loan

On its own ground, nothing competes with asset-based lending.

If you have a real sales ledger, several million pounds of assets, and a need measured in millions, it is the cheapest structure available and the work is worth doing. The security lets a lender advance far more than it would against your profits alone, and the limit grows as you trade, which is why it is the standard tool for a management buyout, an acquisition, or a turnaround. Shawbrook's framing of the alternative is right: cash flow lending 'relies primarily on projected future cash flows', so it suits the opposite shape of business – strong margins, few tangible assets – and is priced accordingly.

The more common reader arrived here wanting to unlock cash from the assets in the business, and their arithmetic came out closer to £330,000 than £3m, on a modest ledger, with the money needed this quarter.

Asset-based lending is the wrong tool for that, and it is worth being specific about why. No UK provider publishes how long a facility takes to arrange; Metro Bank's answer is 'it will depend on the complexity of the deal', and the most optimistic published estimate, from the British Business Bank, is that 'it can take as little as four weeks to receive the money'. You pay for the valuations before any of that. Contracts then run for one to five years, with fees for leaving early, and the limit moves with your collateral rather than with your plans.

If you're waiting on an invoice, a Flexi-Loan can cover the gap, and you can clear it with no early repayment fee once your customer pays.

That is the opposite of a borrowing base in the three ways that matter here. The limit we approve does not move with your stock levels. We take no charge over your company's assets, so your balance sheet stays free for whatever you decide to do next. And you choose a fixed term of between 12 months and five years, so you know the repayment schedule from the outset – but because there is no fee for repaying early, you can clear it as soon as the cash arrives. Many of our customers only take out our finance for a few weeks, or even days.

Which is how Victoria uses hers. She draws around £200,000 to cover payroll while she waits for the councils to pay, then clears it within a week as the money lands. 'It might be just a two or three day gap', she says, 'but when you've got payroll running at that level, two or three days matters.' Read Victoria's story.

The cost and the commitment, in one place. We lend UK limited companies up to £1m as a business loan with flexible repayment options, and interest is charged on what you draw rather than on the limit. Every new Flexi-Loan customer needs a personal guarantee from at least one director, so this is not borrowing without consequences – it is borrowing without a charge over your company's assets. A decision is made within 24 hours, though it might be longer depending on the complexity of the request, and a quick decision isn't a light one: we look at your revenue and what your business can afford to repay before we make an offer.

Two honest limits. We do not offer asset-based lending, invoice finance, or asset finance, so if a borrowing base is genuinely what your company needs, we are not the lender for it. And if the real question is whether to secure your borrowing at all, take it slowly: a secured facility is usually cheaper per pound borrowed, and the price is the charge, the monitoring, and the flexibility you give up.