Generally speaking, the current assets of accounts receivable and inventory serve as the borrowing base for a revolver, which can be accessed periodically, drawn down, and repaid. This structure can accelerate a company’s cash flow by allowing it to borrow against he value of its current assets that are expected to become cash in the near term and to use those borrowed funds to finance working capital. the amount is fixed for a period of time, there is an agreed-upon payment schedule, and amounts paid cannot be reborrowed. On occasion, certain nontraditional assets, such as trade names and intellectual property, may serve as collateral, but these assets are usually considered on a case-by-case basis.
increase, the additional competition is
bringing down the cost to borrowers.
against borrowing availability and the
loan has no financial covenants.
In whatever final form asset-based
facilities are structured, their ability to
allow companies to leverage the stability
of their assets makes them an option
for businesses in many industries, but
particularly for those whose earnings
are more vulnerable to outside forces.
Fixed assets, in contrast, are typically
used as the borrowing base for a term
loan portion of a facility in which
Once an ABL facility is structured,
it generally has only one financial
covenant, which may be springing
in nature. In some cases, it may even
be possible to structure a so-called
covenant-lite loan, in which the
lender establishes a permanent reserve
In the current business climate,
one industry that has made notable
use of ABL structures is agriculture,
particularly producers sensitive
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