Asset-Based Lending for Manufacturers
Asset-based lending gives a manufacturer a revolving line sized to its collateral rather than to its earnings, which is why the line grows as the business grows instead of capping at whatever a bank underwrote last year. As of 2026, a manufacturing ABL runs $250K to $25MM at roughly Prime plus 1%-5%, closes in 10-20 business days, and advances against four collateral classes at different rates: 80%-85% on eligible receivables, 50%-65% of net orderly liquidation value on finished goods, 25%-50% on raw materials, and 70%-80% of liquidation value on machinery and equipment. The number that surprises most manufacturers is work in process, which is almost universally ineligible — a half-machined part has no liquidation market. That single exclusion is why a company with $4MM of inventory on the balance sheet may only see $1.5MM of borrowing base, and why the fix is usually operational rather than financial.
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Where this fits best
Our sweet spot is $5MM to $50MM in revenue on asks between $250K and $5MM. We work meaningfully smaller and meaningfully larger — we have closed $250K factoring lines and $50MM facilities in the same year. What usually decides fit is your credit, your existing debt, and whether the structure works at all. Size is the last thing we look at, not the first.
- •Sweet spot is $5MM-$50MM in annual revenue and two or more years operating — neither is a cutoff
- •Receivables from commercial or government buyers on terms — not consumer sales
- •Inventory in finished goods or raw materials, and ideally owned machinery
- •Growth or a bank line that has stopped keeping up with sales
- •Books clean enough to support a monthly borrowing base certificate and a field exam
What is actually going on
Manufacturers get told no by banks for a reason that has nothing to do with the quality of the business. A bank sizes a line to trailing EBITDA and debt service coverage, so a company that reinvests everything into capacity, or that took a bad quarter on a tariff shift, or that grew 40% and consumed all its cash doing it, looks weak on exactly the metrics the bank cares about. The receivables are excellent. The equipment is paid for. The line is capped at $750K. Asset-based lending asks a different question: what do you own, and what is it worth if we have to sell it. That reframing is why an ABL line moves with the business. Ship more, invoice more, and the borrowing base rises the following month without a new credit approval. For a manufacturer in a growth year, that difference matters more than the rate. The part worth understanding before you start is eligibility, because the gap between what is on the balance sheet and what is in the borrowing base is where most disappointment lives. Work in process is ineligible almost everywhere — a partially machined casting has no liquidation market, so it gets zero. Inventory held on consignment is usually out. Tooling owned by your customer is not your collateral. Receivables past 90 days come out, as do intercompany invoices, and concentration above a threshold gets reserved against. None of that is a reason to avoid ABL. It is a reason to model the borrowing base before you commit to a field exam, which is what we do first — because knowing that $4MM of inventory produces $1.5MM of availability changes the conversation from disappointment to planning.
How it works
Model the borrowing base before anything else
AR aging plus an inventory breakdown by class — raw, WIP, finished — plus an equipment list. Apply the standard advance rates and eligibility rules and you have a realistic availability number within a day, before anyone spends money on diligence.
Field exam and appraisals
A third-party examiner tests your AR and inventory records; equipment gets appraised at orderly and forced liquidation value. This is the step that takes real time. Costs are usually borne by the borrower and disclosed upfront.
Structure the facility
A revolver against AR and inventory, often with a separate term component against machinery. Pricing as of 2026 runs Prime plus 1%-5% depending on collateral quality, reporting discipline, and whether the lender is bank-owned or independent.
Monthly reporting keeps the line alive
A borrowing base certificate, an AR aging, and inventory reporting each month. This is the real ongoing cost of ABL and the reason it is cheaper than factoring — the lender substitutes reporting for taking over collections.
The line grows with the collateral
A good year raises availability automatically. Most facilities also allow a mid-stream increase once the lender knows your account debtors, which happens in days rather than in a new underwriting cycle.
Terms, costs and timelines
| Facility size | $250K - $25MM |
|---|---|
| Pricing (2026) | Roughly Prime + 1%-5% |
| Eligible receivables | 80%-85% advance; typically under 90 days, no intercompany, concentration reserved |
| Finished goods | 50%-65% of net orderly liquidation value |
| Raw materials | 25%-50%, depending on how commoditized and resalable |
| Work in process | Almost always ineligible — zero borrowing base credit |
| Machinery and equipment | 70%-80% of appraised liquidation value, often as a term tranche |
| Time to close | 10-20 business days including field exam and appraisal |
| Ongoing reporting | Monthly borrowing base certificate, AR aging, inventory report |
| Serve fee | A success fee, earned only on closing. Agreed in writing before you sign anything. No retainers, no upfront costs |
ABL vs. the bank line it usually replaces
| A traditional bank line of credit | An asset-based revolving line | |
|---|---|---|
| How the limit is set | Trailing EBITDA and debt service coverage | Eligible collateral, recalculated monthly |
| What a growth year does | Nothing until the next annual review | Raises availability the following month |
| What a bad quarter does | Can trip a covenant and freeze the line | Reduces availability in proportion to collateral, without a default |
| Covenants | Fixed charge coverage, leverage, tangible net worth | Usually a springing covenant or none, in exchange for reporting |
| Cost | Cheaper when you qualify — and you may not | Prime + 1%-5%, still the cheapest revolving option for most non-bank-eligible manufacturers |
| Time to put in place | 30-90 days | 10-20 business days |
How this plays out, with numbers
A precision components manufacturer doing about $14MM in revenue has a $1MM bank line it outgrew two years ago. The balance sheet shows $2.6MM in receivables, $3.9MM in inventory, and machinery the company owns outright. Modeling the borrowing base first changes expectations in a useful way. Of the $2.6MM in AR, about $2.3MM is eligible after removing invoices past 90 days and reserving for a customer at 24% of the book, giving roughly $1.9MM at an 83% advance. The inventory splits into $1.1MM finished goods, $1.4MM raw material, and $1.4MM work in process — so finished goods contribute about $640K at 58% of NOLV, raw materials about $490K at 35%, and WIP contributes nothing. An appraisal supports a $900K term tranche against the machinery at 75% of orderly liquidation value. Total facility: roughly $3.9MM against a $1MM bank line, at Prime plus 3.25%, closed in 17 business days. The company also learns something operationally — $1.4MM of its balance sheet is parked in WIP earning no borrowing base credit, which becomes an argument for shortening cycle times that has nothing to do with financing.
A representative structure, sized to a typical file. Details are generalized — we do not publish client specifics.
When this is the wrong answer
Half of being useful is being clear about what does not work. If one of these describes you, the honest path is below — and it may not run through us.
The borrowing base will disappoint. A receivables-only facility or invoice factoring against your finished jobs is usually the better structure, sometimes paired with a sale-leaseback on owned equipment to pull cash out of the machines.
One buyer at 60% or more of the book is a concentration problem that caps advance rates hard. Factoring with a credit-insured structure sometimes works where ABL will not, because the factor can insure the specific account debtor.
ABL takes 10-20 business days and involves a field exam and an appraisal. Close a bridge or a working capital loan now and let the ABL underwrite in parallel — that sequence is standard, not a compromise.
ABL runs on borrowing base certificates, AR agings, and inventory reporting. If that reporting cadence is not realistic for your team, a term loan with a fixed payment is a better fit even at a higher rate.
