Credit that follows the business, through revolving facilities advanced against receivables and inventory, with the borrowing base, security, and intercreditor terms drafted for the day the line is drawn under pressure.
Asset-based lending advances credit against what a company owns and turns over, chiefly receivables and inventory, and the borrowing base governs the facility. Availability expands and contracts with the collateral, and the risk moves into definitions, reserves, and control. Control is a term of art: a lien on a deposit account is perfected only by control, in practice an agreement with the bank that holds it, never by filing, so the agreement is a closing condition, not an afterthought.
The law also marks what the lender will not reach. A buyer in the ordinary course takes inventory free of the lien, so the real collateral is the receivable and the cash behind it, and once a Chapter 11 petition is filed, receivables generated after the filing belong to the estate except as proceeds of what came before. That is why the asset-based lender is so often the debtor-in-possession lender too.
We act for banks and asset-based lenders and for the companies that borrow from them. The borrowing base, the reserves, and the split-lien intercreditor with a term lender are drafted for the quarter the collateral shrinks.
Structuring and documenting revolving credit and asset-based facilities, including commitment papers, credit agreements, and the availability, sublimit, and swingline mechanics that make a working-capital line operate day to day.
Negotiating the borrowing base itself, meaning the eligibility criteria, advance rates, reserves, and dilution and concentration limits, which are the definitions where availability is won or lost and most of the real bargaining happens.
Financing built around accounts receivable and inventory, including factoring, supply-chain, and floor-plan structures, where the value, turnover, and quality of the collateral pool drive the credit.
The security package an asset-based deal lives on: UCC filings, deposit-account and securities-account control, landlord and bailee waivers, and the treatment of proceeds, so the lien reaches the assets.
Intercreditor and subordination arrangements where a revolver runs alongside a term loan, covering split-lien priorities, enforcement standstills, and the payment waterfalls that decide who is paid first under stress.
The monitoring framework that keeps a facility current, including borrowing-base certificates, field-examination and appraisal rights, and financial reporting covenants, and the amendment, waiver, and workout conversations that follow.
A receivable usually stops being eligible 90 days after invoice, and once a set share of one customer's invoices go stale the rest are excluded with them. Invoices owed by the federal government are ineligible until the Assignment of Claims Act notice is in place, and foreign receivables are out unless insured.
Dilution is everything that reduces a receivable other than cash: credits, returns, and write-offs. The field exam measures it as a percentage of sales over a trailing period, and the advance rate on receivables is typically cut point for point above an agreed level. A borrower with generous return policies pays for them in availability.
A landlord with a statutory or contractual lien on goods at the premises, or a warehouse holding stock under a bailment, can stand between the lender and its inventory. Until a waiver or access agreement is signed, that inventory is usually ineligible or carries a rent reserve equal to a few months of occupancy cost.
Most asset-based facilities test a fixed-charge coverage ratio only when excess availability drops below a set floor, and switch to cash dominion, sweeping collections to the lender daily, at a similar trigger. Both are written as percentages of the line or dollar amounts, and a borrower should model the trough, where they bite.
Receivables are advanced against face value less reserves; inventory is advanced against net orderly liquidation value, the appraiser's estimate of what the stock would fetch in a managed sale after costs, usually a fraction of cost. A fresh appraisal each year, and more often after a trigger, resets that number and with it availability.
Once an account debtor receives notice that its payable has been assigned, payment to the borrower no longer discharges the debt; it must pay the lender. Anti-assignment clauses in customer contracts are overridden for receivables under the UCC. Lenders hold the notices in a drawer and send them on default.
Before terms are set, the lender's field examiners and appraisers walk the receivables aging and the inventory floor. What they find, from dilution history and customer concentration to slow-moving stock, becomes the raw material for eligibility criteria, advance rates, and the opening reserves.
The credit agreement is negotiated around its quietest pages: what counts as an eligible receivable, how dilution is measured, and when the lender may impose new reserves. Availability is won or lost clause by clause here, long before anyone discusses the interest rate.
Closing is a perfection exercise. UCC-1 filings, deposit-account control agreements, landlord and bailee waivers, and lien searches run and cleared are what make the first-priority interest in receivables, inventory, and proceeds reach the assets. Where a term loan sits alongside, the split-lien intercreditor is signed in the same breath.
Funded, the facility lives on a rhythm: borrowing-base certificates, periodic field exams and appraisals, and availability rising and falling with the collateral. When the business tightens and springing dominion, added reserves, or an amendment conversation follow, the drafting done at signing decides how much room remains.
An asset-based facility is tested on the day it is drawn under pressure. Every clause before that is preparation.
Asset-based lending is credit advanced against the value of a company's working assets, principally its accounts receivable and inventory and sometimes equipment or real property, rather than against general cash flow or earnings. Availability moves with a borrowing base that is recalculated as those assets turn over, so the facility expands and contracts with the business it funds. It is a common way to finance working capital for companies whose balance sheet is a stronger credit than their EBITDA.
A borrowing base sets how much a borrower may draw at any time. Eligible receivables and inventory are valued and then reduced by advance rates and by reserves for dilution, concentration, ineligibles, and other risks the lender prices in, to produce the amount of credit available. The borrower reports the base periodically, the lender tests it through field examinations and appraisals, and availability rises and falls as collateral does. The definitions of what is eligible, and the size of the reserves, are where most of the negotiation sits.
A cash-flow loan looks first to earnings and is typically sized and governed by leverage and coverage covenants tied to EBITDA. An asset-based facility looks first to collateral: availability is driven by the borrowing base, the covenant package is usually lighter, and the lender relies on monitoring and control of the assets. The trade-off is more reporting and operational oversight in exchange for availability that follows the business and survives an earnings dip better than a leverage covenant would.
Both, on different facilities. For banks and asset-based lenders we structure and document the line, the borrowing base, and the security and control package; for companies and sponsors we negotiate the eligibility definitions, the reserve triggers, and the reporting burden from the borrower's side. The chair is chosen at the outset of each matter, and the conflict check runs against the borrower's customers as well as the parties, because a lender client's account debtor is often a borrower client. What carries across is a working knowledge of the field-exam report, which is where every negotiation over availability actually starts.
Because the collateral is the deal. An asset-based lender relies on a first-priority security interest in receivables, inventory, and proceeds, and that interest is worth only what can be perfected and enforced. Filings, control over deposit accounts, landlord and bailee waivers, and the treatment of proceeds all decide what the lender can reach if the borrower fails. We build the security and control package with that enforcement day in view.
Many borrowers run an asset-based revolver alongside a term loan, and the two lenders share collateral on a split-lien basis: the revolving lender takes first priority on receivables and inventory, the term lender takes first priority on fixed assets, and each stands second on the other's. An intercreditor agreement fixes that priority, the rules for enforcement and standstills, and how proceeds are applied. These terms decide who is paid first under stress, so we negotiate them with the same care as the facility itself.
Senior, unitranche, mezzanine, and second-lien debt for acquisitions, buyouts, and recapitalizations, with the covenant and leverage terms that have to survive diligence and a downturn alike.
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Explore →Reviewed by Jonathan D. Herpy, Sr., Senior Partner · Last updated October 2026 · Educational overview · Not legal advice
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