Learning Objectives:

  • Explain asset-based lending and its applications.

  • Apply collateral valuation methods.

  • Understand loan-to-value and advance rates.

6.1 Asset-Based Lending (ABL)

Asset-based lending is a specialized form of commercial lending where the loan is secured by the borrower’s assets . ABL facilities are typically used for working capital financing and are based on the value of accounts receivable, inventory, and sometimes equipment. ABL is a key focus of commercial lending curricula .

6.2 Collateral Types and Priorities

Collateral can be real property or personal property used as commercial loan collateral . Understanding lien priority and its effect on recovery in default scenarios is essential . Personal and corporate guarantees serve as secondary repayment sources .

6.3 Collateral Valuation and Perfection

Collateral valuation methods include appraisals to determine value, distinguishing market value from liquidation value for credit purposes . Loan-to-value (LTV) ratios and advance rates establish advance rate policies that limit collateral exposure relative to the loan amount . Perfecting security interests involves the legal steps required to establish an enforceable lien on collateral, including filing, recording, and notice requirements .

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