Primer on Asset-Based Finance (ABF) and Asset-Backed Lending (ABL)

Introduction

Asset-Based Finance (ABF) broadly refers to financing arrangements where specific

assets are used as collateral or as the source of repayment for the funding . In other
words, loans or investments are “asset-backed” – secured by pools of receivables,
inventory, equipment, real estate, or other tangible/financial assets. Asset-Backed (or
Asset-Based) Lending (ABL) is one common form of ABF: typically a loan or line of credit
to a business, secured by the company’s assets (such as accounts receivable and
inventory) . While the terms are sometimes used interchangeably, ABF is a broader
concept encompassing various structures (including ABL, asset-backed securities,
factoring, leasing, etc.), whereas ABL refers specifically to a collateralized loan facility .
This primer provides a comprehensive overview of ABF and ABL, explaining how they
work, how money flows through these arrangements, the key participants involved, and
the pros and cons for both borrowers and lenders. It also includes examples of typical
deal structures to illustrate these concepts in practice.

Overview of ABF and ABL Concepts and Structures

What is Asset-Based Finance (ABF)?

Asset-Based Finance is an umbrella term for financing structures where the funding is
backed by a defined pool of assets or collateral. Unlike traditional corporate loans that
rely on a borrower’s general credit or cash flow, ABF transactions isolate specific assets
(and their cash flows) to support the financing . Common forms of ABF include asset-
backed securities (ABS) and securitizations, where loans or receivables are pooled and
sold to investors; invoice or receivables factoring; equipment or lease financings; and
other specialty credit facilities. In ABF deals, repayment to investors is tied directly to the
performance of the underlying assets (e.g. loan payments from consumers, rental
payments on equipment, etc.), rather than the overall balance sheet of an operating
company . Often a special purpose vehicle (SPV) is created to purchase the assets and
issue securities or notes, ensuring the assets are legally separate (“bankruptcy remote”)
from the originator’s other business risks . ABF has become a significant segment of
private credit markets – for example, it provides funding across residential mortgages,
consumer loans, auto leases, royalties, and other cash-flow producing assets . In
essence, ABF transforms illiquid assets into financing by using the assets’ predictable
cash flows as collateral for investors.

What is Asset-Backed Lending (ABL)?

Asset-Backed/Asset-Based Lending is a specific type of asset-based finance, usually

referring to loans or revolving lines of credit secured by a company’s assets . In an ABL
facility, a lender (often a bank or specialized finance firm) extends credit based on the
value of assets such as accounts receivable, inventory, equipment, or real estate on the
borrower’s balance sheet. The loan amount is directly tied to the collateral’s value,
commonly through a borrowing base formula. For example, a lender might allow a
company to borrow up to 80% of its eligible accounts receivable and 50% of its
inventory value . As the company’s asset values fluctuate (receivables collected, new
inventory acquired, etc.), the available credit line adjusts accordingly (this makes ABL
typically a revolving facility). The defining feature of ABL is that the lender’s primary
focus is on the quality and liquidity of the assets, rather than the borrower’s cash flow or
earnings . This means companies with weaker credit or irregular earnings but strong
asset levels can still access financing. ABL structures tend to be covenant-light regarding
cash flow metrics, but they require regular reporting on the collateral (e.g. receivables
aging reports, inventory counts) and adherence to collateral quality criteria . In
summary, ABL is a loan product under the ABF umbrella, used heavily for working
capital financing, where “the assets do the talking” in securing the loan.

How the Money Flows in ABF and ABL Arrangements

Asset-Based Finance (Securitization) Flows: In many ABF structures (especially
securitizations or asset-backed deals), money flows in a structured way from investors to
the asset originator, and then from the assets back to the investors. Typically, an
originator (e.g. a lender or company with a portfolio of receivables) will sell or transfer a
pool of assets into an SPV/issuer as mentioned. Investors (such as banks, funds, or
institutional investors) provide funding by purchasing securities or notes issued by the
SPV, and the SPV uses that money to pay the originator for the asset pool. Over time,
the underlying borrowers (obligors) on the assets make their scheduled payments (for
instance, consumers pay their loan installments or credit card bills). A servicer collects
these payments and routes the cash to the SPV or a trustee. The SPV (often via a trustee
acting on behalf of investors) then distributes the cash flows to the investors in a
predetermined sequence (called a payment waterfall). For example, interest on senior
notes might be paid first, then interest on junior notes, then principal repayments, etc.,
all based on the incoming asset cash flows. This “self-liquidating” cycle continues until
the assets are paid off or the securities mature. By structuring the flow of funds this way,
the investors’ returns are directly linked to the performance of the asset pool, and the
originator receives upfront liquidity from the sale of assets (while often retaining a
residual interest or junior tranche).

Asset-Backed Lending (ABL) Flows: In an ABL facility, the money flow resembles a
traditional loan but with continuous adjustments. The lender extends a line of credit to
the borrowing company, which the company can draw upon for its working capital or
other needs. The maximum draw is determined by the current value of the pledged
collateral (the borrowing base). Cash flows in ABL are cyclical: the company draws down
funds (in one or multiple advances) – this is cash flowing from the lender to the
borrower. The company then uses those funds in its operations (e.g. to pay suppliers,
cover expenses) and subsequently collects cash from its customers (accounts receivable)
or from selling inventory. Those collections are often required to be swept to the lender
as repayment (sometimes a daily or weekly lockbox arrangement is used where
receivables payments go directly to the lender’s account). As the loan is paid down with
these incoming cash receipts, that portion of the credit line becomes available again for
the company to borrow – hence a revolving cycle . For instance, if a company has $1
million in invoices and an 80% advance rate, it can borrow $800k initially. If $500k of
those invoices get paid by customers, the company must use that $500k to reduce the
loan, but now it can borrow up to $500k again (perhaps against new invoices). In case of
default, the lender will enforce its security interest by collecting the receivables directly
or liquidating inventory/equipment to recover the outstanding loan . Throughout the
life of an ABL facility, money flows back and forth: from lender to borrower as draws,
and from borrower’s operations back to lender as collateral is converted to cash.

Key Participants in Asset-Based Finance Deals

A variety of parties participate in ABF transactions, especially in structured deals like

securitizations. The key participants and their roles include:

Originator: The entity that originally generates or owns the assets being financed. This is
typically the lender or company that extended credit to the obligors (for example, a
fintech lending platform that made consumer loans, or a bank that originated auto
loans). The originator initiates the deal by selling or assigning a pool of assets (loans,
receivables, leases, etc.) into the financing arrangement . In some cases, the originator is
also called the sponsor (particularly if they purchase a portfolio of assets from others to
securitize). The originator often continues to be involved as a servicer or retains a
subordinated interest in the assets, aligning their incentives with the performance of the
asset pool.

Borrowers (Obligors): These are the end-customers who owe payments on the
underlying assets. They could be individuals with loans (in a consumer loan ABS) or
businesses owing on invoices, etc. The obligors are ultimately the source of the cash
flow that supports an ABF transaction – their loan repayments or lease payments get
passed through to investors . Typically, obligors are not even aware that their loan has
been used as collateral in a financing deal; from their perspective, they continue to pay
their debt to the original lender or servicer as usual. In an ABL context, the “borrower” is
the company obtaining the ABL facility (who pledges its assets and is responsible for
repayment).

Investors/Funders: These are the parties providing capital to finance the assets. In a
securitization or structured ABF, investors purchase the asset-backed securities or notes
issued by the SPV and thereby fund the portfolio purchase . Investors can be
institutional funds, banks, insurance companies, pension funds, or other asset managers
seeking fixed-income returns. They are entitled to repayment from the cash flows of the
asset pool, usually with interest. In an ABL loan scenario, the “investor” is the lender
(bank or finance company) that advances money to the borrowing business and takes a
secured interest in the assets. Investors benefit from the collateral backing, which can
make their investment safer or yield higher risk-adjusted returns compared to
unsecured credit .

Servicer: The party that administers the asset portfolio and collects payments from
obligors on behalf of the deal. The servicer sends out bills, processes incoming
payments, handles customer service for the loans, and pursues collection or recovery
actions if needed . Often, the originator will act as the servicer (since it already has the
relationship with the customers), though sometimes a specialized third-party servicer is
used – especially for distressed loans or when the originator lacks servicing expertise.
The servicer is typically paid a servicing fee (a percentage of the assets) for performing
these duties . In ABL, servicing is simpler: the lender might require the borrower to remit
all customer payments to a controlled account; effectively, the lender oversees the cash
collection to ensure loan repayment.

Trustee: In structured ABF deals (like ABS transactions), a trustee is a neutral, fiduciary
entity that oversees the transaction in the interest of the investors . The trustee holds
legal title to the assets on behalf of investors (in some structures), making sure that cash
flows are allocated and distributed according to the securitization documents. They
monitor compliance with covenants and trigger events (such as if asset performance
deteriorates and certain protective measures must kick in). If anything goes wrong (for
example, the servicer fails to perform or the originator goes bankrupt), the trustee steps
in to enforce the rights of the investors and maintain the integrity of the asset pool . In
essence, the trustee adds a layer of oversight, ensuring that the money flows and
safeguards set out in the deal are followed strictly. (Traditional ABL loans usually do not
involve a trustee, but if the ABL is part of a syndicated loan or structured as a CLO, a
collateral agent or trustee might be appointed to similar effect.)

Special Purpose Vehicle (SPV)/Issuer: (Not explicitly listed in the question’s examples,
but worth noting in ABF deals.) The SPV (also called an Issuer in securitization) is a
separate legal entity created to hold the assets and issue the securities. The SPV’s role is
to isolate the asset risk – it purchases the assets from the originator and is the entity
that investors actually invest in. The SPV is typically structured to be bankruptcy-remote
(so if the originator fails, the assets and investor payments are not affected) . The SPV
doesn’t have employees; it operates through contracts (with the servicer, trustee, etc.).
While the SPV itself isn’t a “person” with active duties, it’s a critical part of the ABF
structure enabling the “asset-backed” nature of the financing.

Pros and Cons of Using Asset-Based Finance

From both the borrower’s and the lender’s perspective, asset-based financing has
distinct advantages and drawbacks. Below we break down the pros and cons for each
side:

Borrower’s Perspective (Companies/Originators)

Pros for Borrowers:

Access to Capital When Unsecured Credit Is Limited: ABF/ABL can unlock funding for
companies that might not qualify for large traditional loans. Because the focus is on
asset value rather than just credit ratings, businesses with weaker credit or volatile
earnings can still obtain financing if they have solid collateral . This makes credit easier
to obtain compared to cash-flow loans, as long as adequate assets are available .

Higher Borrowing Capacity & Liquidity: Firms with substantial asset bases can often
borrow more under an ABL facility than they could with an unsecured loan. The
borrowing capacity scales with the value of assets – as the business grows its receivables
or inventory, the credit line can increase accordingly . This provides a robust source of
working capital that grows in tandem with the business.

Potentially Lower Cost of Funds: When assets secure a loan, the risk to lenders is
reduced, which can translate into lower interest rates than unsecured debt . For
established asset types, ABF rates can be relatively attractive. For instance, asset-based
loans often carry interest in the mid-single digits to low teens percent, which can be
cheaper than equity financing or factoring individual invoices . Additionally,
securitization can lower a company’s overall cost of funds by allowing it to borrow at
capital-market rates thanks to the collateral backing (banks and originators often
securitize to get cheaper funding).

Flexibility in Use of Proceeds: Asset-based facilities usually have fewer restrictions on

how funds are used, as long as it’s for business purposes. The company can typically
deploy the capital for any working capital needs, growth investments, or even
refinancing of other debts. This flexibility, combined with the revolving nature of ABL,
means the company can draw and repay as needed, giving it a tool to smooth out cash
flow fluctuations .

Retain Ownership and Control: Unlike raising equity (selling shares), using asset-based
debt allows owners to raise cash without giving up ownership or control of the
company. The company leverages assets it already owns to get financing, which can be
preferable for owners who don’t want to dilute their stake. It effectively “puts valuable
assets to work” without selling them outright .

Cons for Borrowers:

Risk of Losing Important Assets: The primary risk is that if the borrower cannot repay the
financing, the lender or investors will seize the pledged assets. This could mean
liquidating inventory, collecting receivables directly, or foreclosing on
property/equipment . Losing these assets could be devastating to the business’s
operations. Thus, the company is putting critical resources on the line.

Collateral Requirements and Monitoring Burden: Not all assets qualify for ABF, and
lenders impose strict criteria on what counts (e.g., receivables from creditworthy
customers, inventory that can be readily sold) . Borrowers must continuously report on
collateral status – sending sales reports, inventory listings, or aging schedules frequently
(often monthly or even weekly) . This administrative burden can be time-consuming and
may require better internal accounting systems. The company also needs to maintain
the quality of its assets (e.g., avoid letting receivables age too much or inventory go
obsolete), effectively imposing discipline but also constraints on operations.

Costs and Fees: While asset-based loans may have lower interest rates than unsecured
loans, they often come with higher upfront and ongoing fees. Expenses for asset
appraisals, field audits, due diligence, and legal structuring can add up . Likewise,
servicing fees or factoring discounts in some ABF structures might make the effective
cost higher. For example, factoring invoices might involve a 2-5% fee per invoice, which
can be more expensive than a bank line of credit . Borrowers must weigh whether the
greater availability of funds is worth the extra cost.

Liquidity Traps and Borrowing Base Limits: The amount a borrower can access is limited
by the collateral value – this is a double-edged sword. If sales slow down or assets
depreciate, the borrowing base shrinks (potentially when cash is needed most). In
extreme cases, a company could face a credit line cut or a requirement to bring in cash
if collateral falls (an “availability block” or being **“ineligible” assets issue). This means
ABF can be less reliable if asset values are volatile. There’s also often an advance rate
below 100%, so the company never gets full value of its assets in financing (e.g., 70-85%
on receivables means some capital remains tied up) .

Complexity of Structured Deals: For companies engaging in securitizations or structured

ABF, the deals can be complex to arrange. They may require setting up SPVs, obtaining
credit ratings or third-party credit enhancement, and negotiating intricate legal
agreements. This complexity can be time-consuming to execute and manage. It may
also limit a smaller firm’s ability to directly tap securitization markets without a platform
or partner. However, fintech firms often mitigate this by partnering with structuring
agents or using fintech platforms that specialize in such transactions.

Lender’s/Investor’s Perspective

Pros for Lenders/Investors:

Collateral Security and Downside Protection: The primary advantage for lenders or
investors is the added security of collateral. If the borrower defaults, the lender has first
claim on specific assets which can be sold or liquidated to recover funds . This mitigates
credit risk compared to unsecured lending. In securitized structures, investors have legal
claim to the asset pool cash flows, often insulated from the originator’s bankruptcy . All
of this reduces potential losses – for example, banks often experience lower loss rates
on asset-based loans due to the collateral cushion, which is reflected in lower capital
charges and pricing .
Attractive Risk-Adjusted Returns: Because many ABF investments involve specialized or
less liquid assets, they can offer higher yields to investors relative to comparably rated
corporate bonds or loans . Investors essentially earn a “complexity premium” for dealing
with these structures. They also can choose tranches that match their risk appetite (e.g.,
senior AAA-rated tranches with lower yield but very secure, or junior/equity tranches
with high yield). From a portfolio perspective, ABF assets (like consumer loan pools,
royalties, etc.) provide diversification away from traditional corporate credit . The cash
flows are often granular (hundreds of loans in a pool) and relatively predictable, which
can create stable income streams for investors .

Expanded Market and Client Reach: For lenders, offering ABL facilities or purchasing
asset-backed deals allows them to finance segments that might otherwise be off-limits.
For example, a lender can work with a growing business that lacks strong cash flow by
relying on its collateral – thereby gaining a client and earning interest where a cash-flow
lender wouldn’t. Similarly, institutional investors can indirectly finance consumer credit
or niche asset classes (auto loans, student loans, etc.) through ABF investments without
directly running a lending business. This ability to access “non-traditional” credit
exposure is a significant benefit. As PIMCO noted, ABF spans lending outside traditional
corporate loans and real estate, opening new opportunities for private credit investors .

Bank Capital Relief and Off-Balance Sheet Benefits (for Originators): From the
perspective of a bank or originator acting as a lender, securitization (an ABF technique)
can be very advantageous. It allows the bank to move loans off its balance sheet by
selling them to investors, which frees up regulatory capital and balance sheet capacity to
make new loans . The originator can also profit by selling loans at a gain (above par
value) if investors pay a good price . In ABL syndications, banks can reduce their
exposure by bringing in participants who share in the collateral, thus spreading risk.
Overall, ABF techniques can improve financial metrics for lenders (e.g., improving
liquidity ratios, earning fee income from structuring deals, etc.).

Control and Monitoring: Lenders in asset-based deals often maintain tighter monitoring
of the borrower’s situation (since they receive frequent reports and sometimes control
cash collections). While this is a burden for the borrower, it’s a pro for the lender
because it gives early warning signs if the business is deteriorating. The lender can react
(adjust advance rates, tighten terms) more quickly than under a traditional loan that
only tests covenants quarterly. This active oversight, combined with triggers in
structured deals (like diverting cash to a reserve if defaults rise), help investors protect
their interests.

Cons for Lenders/Investors:

Collateral Valuation and Liquidity Risk: The flip side of relying on collateral is that the
lender must correctly value and manage those assets. If the assets turn out to be illiquid
or worth less than expected in a distress scenario, the lender can still suffer losses. For
instance, some inventory might become obsolete, or receivables might not collect in full.
There is a risk of shortfall if the collateral doesn’t cover the loan, despite the security
interest. Investors in ABS similarly face risks like defaults in the asset pool or prepayment
risk that disrupts cash flows. Specialized assets might require expertise to liquidate (e.g.,
repossessing machinery or selling loan portfolios), which not all investors have.

Complexity and Operational Overhead: Asset-based financing arrangements can be

more complex to underwrite and administer compared to plain vanilla loans. Lenders
need to conduct field exams, appraisals, and continuous collateral monitoring – this
increases operating costs. In structured finance, deals involve intricate legal structures
and documentation, servicing arrangements, and sometimes credit enhancements or
hedges. This complexity means higher transaction costs and the need for specialized
knowledge. An investor not fully versed in ABF could misprice the risk. Furthermore,
managing an ABS portfolio requires analyzing tranche structures, servicer reports, and
sometimes dealing with performance triggers – all adding complexity relative to, say,
holding a corporate bond.

Limited Upside, Capped by Collateral: For lenders, while collateral limits downside, the
upside is typically just the interest agreed. If the borrower performs well, they’ll
refinance or payoff, and the lender only gets the interest, which might be lower than
unsecured lending rates (given the security). In other words, returns are capped whereas
in equity or other investments upside could be higher. In securitizations, senior tranche
investors have no upside beyond scheduled interest – prepayments can even reduce
their total interest received. So in a booming scenario, asset-based investors don’t gain
extra (aside from maybe prepayment fees); but in a downturn, they still face all the
complexity of workout and recovery.
Market and Funding Risks: For banks or finance companies making heavy use of ABF,
there is a reliance on secondary markets and investor appetite. For example, if a lender
is funding loans intending to securitize them (originate-to-distribute model), a sudden
market disruption can leave them holding lots of assets they meant to sell. Market
volatility can widen spreads on ABS, raising the cost of funding. Also, many ABF
structures (like warehouse credit lines financing an SPV before a securitization) depend
on confidence in the asset quality – if conditions change, lenders might pull back. This
liquidity risk is a consideration for anyone engaged in ABF from the lending side.

Reputational and Legal Complexity: Enforcing an asset-based loan can be messy –

seizing collateral from a defaulted borrower can strain relationships or lead to legal
battles. There are also laws to navigate (for instance, in some jurisdictions certain assets
can’t be pledged, or there are detailed requirements for perfection of security interest).
Similarly, securitizations have to carefully abide by securities laws and consumer data
privacy when handling loan transfers. These complexities mean lenders must be careful,
and any misstep can lead to legal/reputation issues (e.g., if a servicer mistreats
consumers or if an investor feels misled about asset risks).

Overall, from the borrower’s view, ABF can be a lifeline for liquidity and growth, but it
comes with strings attached in the form of asset encumbrance and reporting. From the
lender’s/investor’s view, ABF offers enhanced security and return opportunities, but
demands expertise and prudent collateral management. Both parties need to weigh
these pros and cons against their objectives and capacities.

Examples of ABF Deal Structures in Practice

To cement the concepts, here are two examples illustrating typical asset-based finance
structures and how they operate:

Example 1: Securitization of Consumer Loans (ABF)

Diagram: Structure of a typical asset-backed securitization, involving obligors
(borrowers), an originator, an SPV/issuer, and investors, with a trustee and servicer
overseeing the cash flows. In a typical securitization (a common form of ABF), an
originator sells a pool of its loan assets to a separate SPV (special purpose vehicle). The
SPV in turn finances this purchase by issuing securities to investors, who pay cash into
the SPV . The original borrowers (obligors) continue to make payments on their loans to
the servicer (often still the originator) over time . The servicer passes those incoming
cash flows to the SPV (or trustee), which then distributes interest and principal to
investors according to the deal’s terms and hierarchy . This structure isolates the asset
pool in the SPV, protecting investors from the originator’s unrelated risks and insolvency
. How it operates in practice: Suppose a fintech lender has a portfolio of $100 million in
consumer installment loans. Rather than holding these on its balance sheet, it creates an
SPV and sells the $100M loan portfolio to it. Investors (say, an insurance company and
an asset manager) agree to fund the SPV by buying $90 million in asset-backed notes,
while the originator retains a $10 million subordinate interest (equity tranche) for credit
protection. The investors’ $90M flows into the SPV, which uses that cash to pay the
originator. Now, as thousands of consumers repay their loans monthly, the servicer (the
fintech, or a third-party) collects those payments. Each month, the cash (after servicing
fees) is passed to the trustee, which pays the investors their due interest and principal.
For example, the deal might stipulate that investors get a 5% annual interest, paid
monthly, and principal gradually as loans amortize. If some loans default, the losses are
absorbed by the $10M junior piece held by the originator (shielding the investors up to
that amount). In this way, the fintech turns its loan assets into immediate working
capital, and investors gain exposure to a diversified loan pool with credit enhancement.
Securitization deals often have multiple tranches of notes (senior, mezzanine, equity) to
offer different risk/return profiles, and involve legal agreements that define how money
flows even in stress scenarios. The key takeaway is that money flows from investors to
the originator upfront, and then from obligors through the servicer to the investors over
time, all governed by the securitization structure.

Example 2: Asset-Backed Revolving Line for a Manufacturer (ABL)

Consider a mid-sized manufacturing company that supplies parts to automotive
companies. It has a lot of capital tied up in working capital: say $5 million in accounts
receivable (customers owe it this money for shipped goods) and $3 million in inventory
of raw materials and finished products. The manufacturer arranges an ABL facility with a
bank, where it can borrow up to 80% of eligible receivables and 50% of inventory value
as a revolving line of credit. This results in an initial credit line of perhaps ~$4 million
against its receivables (0.8 × $5M) plus $1.5M against inventory (0.5 × $3M), so $5.5M
total availability, subject to periodic changes. In practice, the company might
immediately draw, say, $4 million to cover expenses and new production. This $4M cash
is provided by the bank (lender) and secured by the company’s current assets. As the
manufacturer ships products and invoices its customers, those customers (obligors)
eventually pay, for example, $1M in a month. Per the ABL agreement, the company must
use those receivable collections to pay down the loan (often the payments go into a
lockbox controlled by the bank). That $1M reduces the loan balance, but also frees up
borrowing base capacity – the company can borrow again against new receivables it
generated or the remaining assets . The bank monitors the company’s collateral through
monthly borrowing base certificates. If the manufacturer’s sales slow and receivables
drop, the max credit line will shrink accordingly, potentially preventing further
borrowing until new collateral comes in. The money flow is cyclical: funds to the
company when needed, and proceeds from operations back to the lender to repay. For
instance, in the scenario above, after collecting $1M and paying the bank, the company
might order new raw materials, increasing inventory – that could allow it to borrow
perhaps $0.5M more (50% of the new inventory’s value). In an ongoing cycle, the ABL
acts as a flexible cash flow bridge. If the manufacturer defaults (can’t pay interest or
violates terms), the bank has a first lien on the receivables and inventory. The bank could
then directly notify the manufacturer’s customers to remit payments to the bank, and/or
seize the inventory to sell it off. In the earlier example, a $4M credit on $5M receivables
provides a cushion such that even if some invoices don’t pay, the bank is likely to
recover most of its $4M by collecting whatever is possible (and the initial advance rate
(80%) was set knowing not all $5M might be perfectly collectible). This example shows
how ABL operates in practice as a revolving, collateral-dependent loan that ebbs and
flows with the company’s business activity, providing essential liquidity but under careful
lender supervision .
By understanding these structures, participants, and money flows, a fintech company
can appreciate how ABF and ABL enable financing based on assets. Whether packaging
loans into securities or drawing a loan against receivables, the core principle is
leveraging asset value to channel funds from those with capital (investors/lenders) to
those in need of capital (borrowers/originators), and repaying the former from the cash
generated by the assets. Asset-based finance, when used prudently, can be a win-win:
borrowers unlock capital for growth, and lenders gain secured, yield-bearing
investments .

Sources: The information in this primer is drawn from industry research and
publications, including insights from PwC on securitization participants , definitions from
PIMCO and Brookfield on the scope of ABF , as well as practical guides on ABL from
Bank of America and others . Statistical and market context (such as the size of the ABF
market) and best practices have been referenced from recent analyses (UBS, PIMCO) .
These sources reinforce the concepts of how asset-based financing works and why it’s
becoming an important financing strategy in the evolving lending landscape.