Asset Based Lending - The Bigger Picture Behind Invoice Finance
Asset based lending (ABL) is a funding package where you borrow against the assets your business already owns: unpaid invoices, stock, plant and machinery, or property. Invoice finance is the most common component - it sits inside over 90% of ABL facilities. Think of ABL as invoice finance plus extras. If you only need funding against your invoices, you just need invoice finance. If you want to unlock cash from other assets too, ABL is the bigger package.
Asset based lending (ABL) is a combined funding facility that lends against multiple business assets: invoices (70-95% advance), stock (40-60% advance), plant and machinery (50-80% advance), and property (50-70% advance). Invoice finance is the core component, present in over 90% of ABL facilities. ABL is typically used by businesses with £1m+ turnover. More detail + scope
This page covers
What asset based lending is, how it relates to invoice finance, what assets can be included, typical facility structures, and when ABL is needed vs standalone invoice finance
Not covered here
Standalone invoice finance (see /guides/how-invoice-finance-works/), provider comparison (see /compare/), invoice finance fundamentals (see /guides/invoice-finance-explained/)
What Assets Can You Borrow Against?
| Asset | Typical Advance | How It Works |
|---|---|---|
| Unpaid invoices | 70-95% | Revolving - cash released per invoice, repaid when customer pays |
| Stock / inventory | 40-60% | Revolving - based on audited stock value, adjusted monthly |
| Plant and machinery | 50-80% | Term loan - lump sum against valuation, repaid monthly |
| Commercial property | 50-70% | Term loan - secured against property valuation |
The invoice finance element does the heavy lifting. In most ABL facilities, invoices provide 60-80% of the total funding. Stock and other assets top it up. This is why most ABL providers are also invoice finance specialists - the invoice element is the engine.
Do You Need ABL or Just Invoice Finance?
You just need invoice finance if:
- • Your main cash flow problem is waiting for invoices to be paid
- • Your turnover is under £1 million
- • You do not hold significant stock
- • You do not own major equipment or property
ABL makes sense if:
- • You need more funding than invoices alone can provide
- • You hold significant stock or inventory
- • You own plant, machinery, or commercial property
- • Your turnover is £1 million+ and you want a single facility
Who Provides ABL in the UK?
ABL is typically offered by the larger providers because it requires expertise across multiple asset classes, not just invoices:
- Lloyds Commercial Finance - the largest UK ABL provider by volume
- HSBC Invoice Finance - strong on larger, multi-asset facilities
- Close Brothers - good for mid-market ABL (£1m-£25m turnover)
- Aldermore - challenger bank with growing ABL capability
Most businesses searching for "asset based lending" actually just need invoice finance. If that sounds like you, start with our how invoice finance works guide instead - it is simpler, faster to set up, and available at lower turnover levels.
The ABL Funding Stack - How the Facility Is Built
How an ABL Facility Is Priced
ABL pricing has four main components. The service fee covers ledger management and admin. The discount or interest charge is the cost of the funds drawn. The arrangement fee is paid up front. And ongoing monitoring fees cover audits and reporting.
- Arrangement fee
- - 0.5% to 1.5% of the total facility, typically £10,000 to £75,000 for a mid-market deal
- Service fee
- - 0.1% to 0.5% of turnover funded, charged monthly on the invoice finance element
- Discount / interest
- - Bank of England base rate plus 2% to 5%, charged on the drawn balance day by day
- Audit fees
- - £4,000 to £8,000 per quarterly audit, billed to the borrower
- Minimum monthly charges
- - a fixed floor payable even when you do not draw
A £10 million turnover business on ABL will typically pay £80,000 to £150,000 a year in total costs across service, discount, arrangement, and audit fees. The same business on standalone invoice finance usually pays £40,000 to £90,000 a year, but with less total funding unlocked.
Covenants, Reporting, and the Audit Regime
ABL is materially more demanding than standalone invoice finance. Expect the following reporting cadence:
- Weekly
- - aged debtor report uploaded to the lender portal
- Monthly
- - management accounts, cash flow forecast, stock report
- Quarterly
- - external audit visit, covenant test (EBITDA, net worth, concentration)
- Annually
- - full facility review, signed accounts, renewal decision
Typical covenants include a minimum tangible net worth, a minimum EBITDA to interest ratio, a cap on concentration (no single customer above 25-30% of the ledger), and a cap on dilution (credit notes and write-offs below 5% of turnover). Breaching a covenant gives the lender the right to step in, reduce advance rates, or withdraw the facility.
This is the reason most sub-£5 million businesses stay with standalone invoice finance. The reporting overhead of ABL can consume a full-time finance role, and the covenants limit how the business is run. Below that size, the extra funding rarely justifies the admin.
Worked Example - £12 Million Manufacturer
A Midlands-based engineering manufacturer turning over £12 million with £2.4 million of stock, £1.8 million of plant, and a £1.5 million freehold factory refinances an ageing bank overdraft into a full ABL facility. The structure looks like this:
| Asset | Value | Advance | Funding unlocked |
|---|---|---|---|
| Invoice ledger | £2,200,000 | 85% | £1,870,000 |
| Stock | £2,400,000 | 50% | £1,200,000 |
| Plant and machinery | £1,800,000 | 60% | £1,080,000 |
| Freehold property | £1,500,000 | 65% | £975,000 |
| Total | £7,900,000 | £5,125,000 |
Standalone invoice finance on the same business would have unlocked roughly £1.87 million. ABL unlocks £5.1 million. The manufacturer uses the headroom to fund a factory extension, buy out a departing shareholder, and retire the overdraft in one go. Total cost of the ABL facility is around £180,000 a year - around 1.5% of turnover.
When to Refinance Out of ABL
ABL is a growth tool, not a forever home. Most businesses eventually move off ABL into one of three places:
- Down to invoice finance only
- - once stock and property loans are repaid, the business reverts to a simpler standalone invoice finance line
- Up to a term loan plus revolving credit facility (RCF)
- - once profitability is steady, cheaper unsecured options open up at high street banks
- Into private credit
- - larger businesses (£30 million+ turnover) sometimes refinance into private credit or debt fund facilities which have looser covenants
Plan the exit at the point you sign the ABL. Build refinance headroom into the business plan and test covenant compliance quarterly. Most ABL problems show up at renewal, not during the first 12 months.
Common Mistakes When Negotiating ABL
Businesses that end up unhappy with ABL almost always made one of these four mistakes at the negotiation stage. Flag them before you sign.
- Agreeing headline advance rates without checking concentration sub-limits
- An 85% advance on the ledger can drop to 50% overnight if a single customer exceeds 25% of the total. Model the concentration rules against your actual top five debtors before you sign.
- Accepting property valuations that ignore short-lease risk
- Lenders advance against property on a 180-day forced sale valuation. If your lease has under 10 years remaining, the advance can be half the open-market figure. Ask for the valuation assumptions in writing.
- Under-negotiating termination fees
- Standard ABL contracts charge 2-3% of the facility as an early termination fee for the first two years. Push for a step-down structure and a carve-out for refinance to a regulated bank. Unrestricted exit fees quietly cost six figures on a £10m facility.
- Missing the covenant baseline
- Covenants are set from your last signed accounts. If you took a one-off hit (restructuring cost, bad debt write-off), that becomes the baseline unless you successfully argue for an EBITDA add-back. Challenge it at term sheet stage, not after signing.
Asset Based Lending FAQ
What is the minimum turnover for asset based lending in the UK?
Most UK ABL facilities start at £1 million annual turnover, with the main volume between £5 million and £100 million. Below £1 million, a standalone invoice finance facility usually makes more sense because the setup cost and covenant burden of ABL are not justified by the extra funding unlocked.
Is ABL cheaper than invoice finance?
Per pound of funding drawn, ABL usually looks cheaper on paper because interest is charged over a larger base. But the total cost including audit fees, monitoring fees, and the legal setup is higher. The real question is not price per pound but whether you can raise enough cash from invoices alone. If yes, standalone invoice finance is almost always cheaper overall.
How often does an ABL lender audit the facility?
Quarterly field audits are standard on ABL. An external auditor (usually from a firm like RSM, BDO, or Grant Thornton) visits your offices, samples invoices, checks stock records against physical inventory, and tests the underlying ledger. Audit fees are typically £4,000-£8,000 per visit and are billed to the borrower.
Can I have ABL and a bank overdraft at the same time?
Usually not. The ABL lender takes a first-ranking debenture over your book debts and other assets. Most banks will not keep an overdraft in place behind an ABL debenture because their security position is weaker. In practice, the ABL facility replaces the overdraft. Some lenders allow a small 'tail' overdraft for day-to-day operations.
What happens at an ABL renewal?
ABL facilities are typically 2 or 3 year agreements with an annual review. At each annual review, the lender reassesses advance rates, covenants, and fees based on updated trading performance. Renewal failures happen when turnover drops sharply, concentration in one customer exceeds 25-30% of the ledger, or dilution (credit notes, returns, write-offs) rises above 5%.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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