When asset-based debt is the right instrument.
The candidates identify themselves on the balance sheet: distributors, manufacturers, staffing businesses, and any company where receivables and inventory are large relative to earnings. Seasonal and working-capital-intensive businesses fit because availability grows with the assets exactly when the cash need does. And businesses whose earnings are cyclical, recovering, or hard to adjust cleanly often borrow more against their collateral than any earnings multiple would allow.
The comparison with cash flow debt is a comparison of the question the lender is answering. A cash flow lender underwrites a stream and asks whether it continues. An asset-based lender underwrites a pile and asks what it is worth without the business attached. A borrower with a strong pile and a complicated stream is usually better served by the second question.
It is not the universal answer. The reporting burden is real, availability moves with the assets in both directions, and a business whose value sits in contracts and people rather than collateral has little for a borrowing base to see. Part of the mandate is establishing honestly which side of that line the business is on.
What do advance rates run right now?
Eligible receivables carry advance rates of 80% to 85%. Inventory blends to about 50%, and the blend hides a wide spread: finished goods at 50% to 60% of net orderly liquidation value, raw materials at 40% to 55%, and work in progress typically excluded altogether (ABF Journal, 1 June 2026).
The arithmetic runs in two steps, and the first is the one borrowers skip. Gross assets become eligible assets after exclusions and reserves; eligible assets become availability after the advance rate. A business with $10m of receivables and $8m of inventory does not have $18m of collateral. It has whatever survives both steps, and negotiating the definitions that govern them is negotiating the size of the loan.
Current pricing relative to cash flow debt, and the borrowing-base mechanics in full, are maintained in the linked positions below with every figure dated and attributed.
How an asset-based raise differs.
The diligence is physical in a way cash flow lending is not. Field examinations, receivables ageing and dilution analysis, inventory appraisals on a net-orderly-liquidation basis, and equipment valuations all precede terms, and their findings set advance rates facility by facility. Preparing that examination, rather than merely undergoing it, is where a borrower's outcome is made: clean data and explained anomalies translate directly into higher advance rates.
The economics are negotiated in the definitions rather than the margin. Eligibility criteria, concentration limits, dilution reserves, and the lender's discretion to impose new reserves determine what the facility actually yields against its committed size. Two facilities with identical headline rates and different eligibility definitions are different amounts of money.
The operating relationship also differs. A borrowing-base certificate is produced monthly or weekly, availability recalculates with it, and the facility behaves as a living instrument rather than a closed term sheet. The mandate includes building the reporting the facility will demand, so the business can operate the structure it signed.
What asset-based lenders test.
The collateral first, and in more granular form than most borrowers expect: who owes the receivables and how concentrated they are, how much billed revenue dilutes to credits and disputes, how inventory would sell in an orderly liquidation, and whether any of it is already spoken for by liens the borrower has half-forgotten.
Then the systems. An asset-based lender is lending against numbers the borrower reports weekly or monthly, so the reliability of those systems is itself a credit question. A business that cannot produce a clean ageing on demand will pay for that in advance rates, reserves, or a declined term sheet.
The stream is not ignored, but it stands second. Coverage of the cash interest, the seasonality of the borrowing need, and the path by which the facility is eventually refinanced or retired all get tested, because a collateral lender still prefers never to test the collateral.