Capital & Financing
What Is Asset-Based Lending (ABL)?
Asset-based lending (ABL) is a revolving credit line where the limit moves with what you own, sized against collateral like accounts receivable and inventory. Lenders typically advance about 80 percent on eligible AR and 50 to 70 percent on qualifying inventory, and once a brand qualifies (usually $15 to $25M revenue) ABL is the cheapest non-equity capital available, often SOFR plus 3 to 5 percent or roughly 8 to 13 percent APR. That beats revenue-based financing at 15 to 35 percent and merchant cash advances at 50 to 180 percent.
Asset-Based Lending (ABL) is a revolving credit line where the limit moves with what you own. The lender sizes your borrowing power against your collateral, mainly your accounts receivable (AR, the money customers owe you) and your inventory. As those grow, so does your available credit. Once you're large enough to qualify, ABL is the cheapest non-equity capital a DTC brand can access.
How ABL works
The lender assigns an advance rate (the percent of each collateral type they'll lend against):
- Eligible AR (receivables current to 90 days): 80 percent advance
- Eligible inventory (sellable, not slow-moving or obsolete): 50 to 70 percent of cost
- Equipment, if any: 70 to 80 percent of orderly liquidation value
Add the advances together and that total is your borrowing base. You can draw any amount up to that limit, repay, and re-draw. You only pay interest on what's actually drawn.
A worked example
A $40M DTC brand has $2.4M in AR (mostly wholesale) and $5.5M in qualifying inventory. Borrowing base = ($2.4M times 80 percent) plus ($5.5M times 60 percent) = $1.92M plus $3.3M = $5.22M. The brand has currently drawn $3M at the Secured Overnight Financing Rate (SOFR) plus 4.25 percent, roughly 10.8 percent APR. That's significantly cheaper than Revenue-Based Financing (RBF) at 15 to 35 percent or a Merchant Cash Advance (MCA) at 50 to 180 percent.
Qualification
- $15 to $25M revenue minimum (some lenders flex lower for inventory-heavy brands)
- Audited or reviewed financials
- Clean general ledger (GL) and receivables aging report
- Personal guarantee (PG) from the founder, usually required
- Quarterly field exams and borrowing-base certificates required by the lender
The most common mistake
Treating an ABL as set-and-forget capital. ABLs require quarterly borrowing-base certificates, field exams, covenant compliance, and proper aging discipline on AR and inventory. Skip the discipline and the lender will pull back availability, usually right when you need it most.
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
Frequently Asked Questions
what is an abl in plain english?
It's a revolving credit line (like a business credit card with way more zeros) where your borrowing limit moves with what you own. As your AR and inventory grow, your available borrowing grows. Once you're big enough to qualify, ABL is the cheapest non-equity capital you can get.
how do abl advance rates actually work?
Different collateral types get different advance rates. AR that's current (not aged past 90 days): 80 percent advance. Inventory that's actually sellable (not slow-moving or obsolete): 50 to 70 percent of cost. Example: $1M in AR plus $2M in qualifying inventory gives you $800K plus $1.2M, or a $2M borrowing base.
at what revenue does a dtc brand qualify for abl?
Usually $15 to $25M in revenue, plus audited or reviewed financials, clean books, and predictable cash flow. Below that, you're looking at RBF or purchase-order financing instead. Above it, ABL is usually the cheapest option at roughly SOFR plus 3 to 5 percent (about 8 to 13 percent APR in today's rate environment).