What is an asset-based loan?
An asset-based loan (ABL) is a business loan secured by company assets. Lenders use the value of collateral—such as accounts receivable, equipment, inventory, or real estate—to determine the size and terms of the credit facility. The structure frequently involves periodic reporting, collateral monitoring, and lien filings to protect the lender’s interest.
Common uses for this loan type in the general contracting industry
- Working capital to cover payroll and ongoing job costs during project cycles.
- Purchasing or leasing heavy equipment, vehicles, and specialized tools.
- Bridging gaps between project expenses and progress payments or retainage releases.
- Funding to support multiple simultaneous jobs when receivables are tied up in long billing cycles.
- Financing large supply purchases to meet project demand or seasonal peaks.
Typical eligibility considerations
Approval and terms depend largely on the quality and type of collateral, along with business financials. Common factors lenders review include:
- Collateral types and value — accounts receivable, equipment appraisals, inventory counts, and real estate valuations.
- Receivables profile — aging, concentration by customer, contract terms, and the likelihood of collection.
- Documentation — invoices, purchase orders, lien waivers, insurance, and proof of ownership for equipment.
- Financial statements and cash flow — historical revenue, margins, and evidence of ability to manage project costs.
- Existing liens and credit filings — prior UCC statements, tax liens, and other encumbrances can affect availability.
- Industry experience and contract backlog — demonstrated project management and a pipeline of billable work.
Key risks and considerations
Asset-based lending has trade-offs distinct from unsecured or relationship-based credit. Important considerations include:
- Valuation risk — collateral values can fluctuate; lenders may apply conservative advance rates that limit available cash.
- Priority and liens — lenders typically perfect security interests; other creditors or unpaid subcontractors may complicate lien priority.
- Covenants and reporting — frequent financial reporting and borrowing base reconciliations can increase administrative workload.
- Operational constraints — restrictions in loan documents can limit asset sales, equipment use, or subcontracting arrangements.
- Forced liquidation risk — if covenants are breached, the lender has legal remedies that can include seizing and selling collateral.
- Cost and structure — fees, interest, and monitoring costs vary; total borrowing costs depend on structure and risk factors.
- Concentration exposure — heavy reliance on a few large receivables or customers reduces borrowing base reliability.
Alternative financing options
Contractors may consider other forms of business finance depending on needs and qualifications. Alternatives include:
- Invoice factoring or receivables financing — selling or borrowing against invoices for faster conversion to cash.
- Revolving lines of credit — unsecured or secured credit lines for short-term liquidity needs.
- Equipment loans or leases — financing specifically tied to new or used machinery and vehicles.
- SBA or government-backed programs — longer-term credit options with program-specific eligibility rules.
- Purchase order or supply chain financing — funding tied to specific purchase orders or supplier invoices.
Explore financing options
The link below provides general information about available financing options.
This content is for informational purposes only and does not constitute financial advice or a loan offer. Loan eligibility, terms, and approval are determined by lenders based on individual review.