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The Difference Between Asset-based Lending (ABL) and Asset-based Financing (ABF)

Last Modified : Mar 20, 2024

Reviewed by: Bruce Sayer

The terms “asset-based lending (ABL)” and “asset-based financing (ABF)” are often used interchangeably in the financial industry, but they can denote slightly different nuances or scopes depending on the context.

Asset-Based Lending (ABL)

  • Definition: Asset-based lending is a specific type of financing where a loan or line of credit is provided to a company, secured by company assets as collateral. These assets typically include accounts receivable, inventory, equipment, and sometimes real estate.
  • Focus: The primary focus of ABL is to provide working capital for businesses to manage their day-to-day operations, expand operations, or manage cash flow. The borrowing capacity is directly tied to the value of the collateralized assets.
  • Use Cases: Commonly used by companies that need to improve liquidity or have significant capital tied up in their assets. It’s particularly popular in industries like manufacturing, wholesale, retail, and staffing agencies.

Asset-Based Financing (ABF)

  • Definition: Asset-based financing can be a broader term that encompasses any type of financing secured by assets. This includes asset-based lending, but it can also extend to other types of secured loans or financing arrangements where physical or financial assets are used to secure funding.
  • Scope: It may cover a wider range of financing products beyond traditional loans and lines of credit, such as equipment financing, factoring, and lease-back arrangements, where assets are sold and leased back to free up capital.
  • Use Cases: Used by businesses across various stages of growth and for various purposes, including start-up financing, growth capital, restructuring, and turnaround financing. It’s applicable across a broad spectrum of industries.

Key Differences

  • Specificity: Asset-based lending is a more specific term, focusing on loans and lines of credit secured by business assets. Asset-based financing is a broader term that includes ABL but also encompasses other financing structures where assets are used as security.
  • Range of Products: ABL typically refers to revolving lines of credit or term loans. Asset-based financing can include a wider range of products, including leasing and invoice factoring, offering more flexibility in how assets can be leveraged for capital.
  • Purpose and Application: While both are used to unlock the value of a company’s assets for liquidity, asset-based financing offers more diverse options for how and for what purposes assets can be utilized to secure funding.

Examples of ABL vs. ABF

An example of a financing solution that falls under the umbrella of asset-based financing but not specifically asset-based lending (ABL) is equipment financing.

Equipment Financing:

Equipment financing is a type of asset-based financing where the loan is used specifically to purchase new or used equipment for a business. In this arrangement, the equipment itself serves as collateral for the loan. If the borrower defaults on the loan, the lender has the right to seize the equipment to recover the owed amount. This financing solution is tailored to businesses that need to acquire machinery, vehicles, or other types of equipment to operate or expand but may not have the cash flow to purchase the equipment outright.

How It Differs from ABL:

  • Specific Use: Unlike ABL, which provides a general line of credit based on a variety of assets (such as receivables and inventory) for any business purpose, equipment financing is specifically for acquiring equipment.
  • Collateral: The collateral for equipment financing is the equipment itself, rather than a broader range of business assets.
  • Purpose and Structure: Equipment financing is structured around the purchase and use of the equipment, with terms and repayments often aligned with the expected life and depreciation of the equipment.

Real-World Application:

Consider a construction company needing to purchase a new excavator to take on larger projects and replace an older, less reliable model. The company opts for equipment financing to spread the cost of the excavator over its useful life, making the purchase financially feasible without diverting large amounts of cash from other operational needs. The financing agreement allows the company to use the excavator immediately while paying for it in installments, with the excavator itself securing the loan.

More Examples of financing solutions that are considered asset-based financing, but not traditional asset-based lending:

  1. Invoice Factoring
    This involves selling your outstanding invoices at a discount to a factoring company. The business gets immediate cash, and the factoring company collects directly from the customers. Unlike ABL, this is a sale of receivables, not a loan.
  2. Merchant Cash Advances (MCA)
    MCAs provide businesses with a lump sum of cash in exchange for a portion of future credit card sales. The advance is repaid through daily or weekly deductions from the business’s credit card transactions.
  3. Real Estate Financing
    This involves loans secured by commercial or residential real estate. The financing is specifically used to purchase, develop, or refinance property, with the property itself serving as collateral.

Each of these examples showcases the diversity of asset-based financing solutions available to businesses, catering to different needs and scenarios beyond the scope of traditional ABL.


In essence, while all ABL is a form of asset-based financing, not all asset-based financing qualifies as ABL. The choice between ABL and other forms of asset-based financing depends on the specific needs, circumstances, and strategic goals of the business seeking funding.


ABOUT eCapital

Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.

We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.

Matt Debernardo Headshot

Matt DeBernardo, SVP, Business Development Officer, is an accomplished finance professional with over 15 years of experience in alternative finance. In his role, he is responsible for structuring creative, flexible asset-based lending solutions that maximize working capital.

Prior to joining eCapital, Matt held senior positions at Alterna Capital and LSQ, where he was a top producer. His commitment to the alternative finance industry is evident in his active participation in the Secured Finance Network as a board member for the Florida chapter, and a member of many other industry organizations such as the Association for Corporate Growth and the Turnaround Management Association.

Matt earned a Bachelor of Science degree (honors) in Finance from Bentley University and is a graduate of the General Electric Financial Management Program.

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