A Manufacturer’s and Distributor’s Guide to Asset-Based Lending

Manufacturers and distributors are navigating one of the toughest financial landscapes in decades. Cash flow pressures have become the defining challenge, with tight credit markets, trade frictions, volatile input costs, and unpredictable demand cycles testing even the strongest firms. Adding to the pressure, many customers are extending payment terms, some as high as Net-90 or even Net-120, creating significant gaps between receivables and payables.

As cash flow tightens, operations may stall and profitability contracts. Meanwhile, competitors with more stable financial structures are leveraging AI tools, automation, and data analytics to accelerate production, raising the stakes for those who lag behind.

For manufacturers and distributors, asset-based lending (ABL) is the ideal funding solution as it leverages receivables, inventory, equipment, and other assets to maximize access to credit. Unlike rigid traditional loans, ABL provides scalable, adaptable funding with minimal loan covenants, empowering firms to manage disruptions, pay suppliers on time, and fuel growth.

This article examines how ABL enables companies to address three key challenges: managing inventory and supply chain disruptions, handling payables, and securing flexible capital for growth.

Three critical financial challenges

The U.S. economy is expected to face a prolonged period of slow growth, extending well beyond 2026, marked by lingering inflation, tighter credit, trade uncertainty, and a softer labor market. Consumer spending and business investment continue to lag, adding pressure on operations.

Against this backdrop, manufacturers and distributors face three critical financial challenges:

• Managing inventory and supply chain disruptions
• Managing payables and payment terms
• Securing flexible working capital

How companies navigate this uncertain environment will determine their ability to remain profitable and sustainable.

Let’s take a closer look at each of these challenges and examine how ABL provides the liquidity needed to bridge cash flow gaps, stabilize operations, and fund the necessary investments to remain competitive.

Key Challenge #1: Managing Inventory and Supply Chain Disruptions

The problem: Supply chain delays, shipping bottlenecks, vendor issues, and raw material shortages can significantly impact the ability to forecast and fill orders. Ensuring adequate stock is critical to meeting customer lead times, but maintaining the golden rule of inventory management is a delicate balance: too much inventory ties up capital, while too little risks stockouts, lost sales, or missed contracts.

The solution: Manufacturers and distributors can react to emerging disruptions by enhancing supply chain visibility and having the agility to respond quickly.

ABL offers flexible financing to support investments in technology. ERP and SCM systems centralize data, while IoT and blockchain technology enable real-time transparency. AI-driven analytics provide predictive and scenario-based insights. Together, these tools reduce blind spots, improve resilience, and allow proactive management of disruptions.

ABL facilities offer a revolving line of credit up to $50M, providing the financial strength to adjust to changing conditions, such as securing and holding stock ahead of disruptions.

Case study: Pegasus Foods, a frozen food manufacturer, faced unforeseen costs during a major relocation that threatened its cash flow and supply chain stability. By leveraging an ABL facility alongside a CapEx loan from eCapital, the company maintained liquidity to cover expenses and keep production moving without sacrificing customer commitments.

Key Challenge #2: Managing Payables and Payment Terms

The problem: Financial health is often compromised by supplier payment terms, cash tied up in inventory, and delays in collecting from customers. Prolonged liquidity issues can create a risk of insolvency if obligations come due before inventories are sold or receivables are collected.

The solution: The best specialty lenders tailor ABL facility sizes and borrowing base calculations to align with a company’s cash flow cycles. When payables spike (for example, to buy inventory or expand production lines), the facility provides the immediate liquidity to cover obligations without disrupting operations or growth plans.

ABL facilities feature minimal loan covenants, allowing funds to be drawn and deployed as needed to maximize flexibility. As receivables are collected and inventory is converted back into cash, the facility is repaid, keeping financing efficient and closely aligned with actual business performance. This flexibility enables the company to fulfill large retail orders, cover supplier obligations, and grow—without risking insolvency or disrupting operations.

Case study: Pact, an e-commerce brand focused on sustainability, required financing that adapted to its direct-to-consumer model and shifting payables. eCapital structured an ABL solution with additional borrowing base availability and flexible terms, enabling Pact to manage its cash flow and growth even amid extended collection cycles.

Key Challenge #3: Securing Flexible Working Capital to Support Growth and Drive Profitability

The problem: Expanding into new markets, launching additional product lines, or taking on larger customer contracts often requires significant upfront capital. Traditional lenders may impose fixed repayment schedules, long approval timelines, or restrictive covenants that don’t align with the pace of growth. Without flexible financing, businesses risk missing opportunities or straining liquidity when reinvestment outpaces cash inflows.

The solution: ABL facilities are designed to scale with a company’s growth trajectory. As assets such as receivables, inventory, or equipment increase, borrowing capacity grows accordingly—unlocking immediate working capital to fund expansion initiatives. Specialty lenders tailor terms to meet industry-specific needs, enabling companies to invest confidently without compromising operational stability.

Case study: A leading recreational products manufacturer recently secured a $25M ABL facility from eCapital to scale production, expand distribution, and pursue new opportunities. With borrowing capacity that grew alongside assets, the company unlocked the working capital needed to fuel expansion without the constraints of traditional lending.

Considerations

While ABL funding is straightforward, business leaders should be aware of key considerations when engaging specialty lenders and structuring ABL facilities:

• Borrowing Base Definition and Advance Rates: Understand how receivables and inventory are valued for borrowing base purposes. Are receivables only those under a certain age? Is inventory valued conservatively (net orderly liquidation value vs wholesale)? These rates determine the maximum amount you can draw.
• Reporting and Monitoring Requirements: ABL facilities typically require regular reporting, including aging schedules, inventory audits, physical counts, and field examinations. While this can add administrative burden, it also improves internal visibility and often uncovers operational inefficiencies.
• Asset Quality and Customer Concentration: Lenders prioritize receivables from creditworthy customers with clear terms and minimal disputes. Inventory should be marketable, appropriately stored, and have a low risk of obsolescence. If a large percentage of receivables is from a single customer, or inventory is hard to sell, advance rates may be reduced.
• Cost/Benefit Analysis: Financing costs should be compared to the benefits. Fast, easy access to working capital helps prevent stockouts, secure supplier discounts, and improve margins.
• Alignment with Business Cycles: The best specialty lenders understand your industry’s seasonality or cyclicality, and structure terms to accommodate fluctuations.
• Lender Expertise and Fit: A lender familiar with your industry, product mix, seasonal fluctuations, and supply chain dynamics can structure more responsive, fair, and effective facilities.

Conclusion

In an uncertain economic climate, liquidity is the lifeline that keeps manufacturers and distributors moving forward. Asset-based lending bridges cash flow gaps while providing the flexibility to navigate disruptions, manage obligations, and pursue profitable growth. By aligning financing with real business performance, ABL empowers companies to strengthen resilience today and seize opportunities tomorrow.

Contact us to unlock the working capital your business needs to stay competitive. Our tailored ABL solutions can support your operations, fuel growth, and keep your business moving ahead.

Key Takeaways

• Manufacturers and distributors are navigating one of the toughest financial landscapes in decades; cash flow pressures are the defining challenge.
• Asset-based lending (ABL) leverages receivables, inventory, equipment, and other assets to maximize access to credit.
• Asset-based lending bridges cash flow gaps while providing the flexibility to navigate disruptions, manage obligations, and drive profitable growth.