How Is Asset-Based Lending Different from Commercial Lending?

In commercial lending, the credit worthiness of the borrower is the deciding factor in getting a loan. In contrast, an ABL line looks at the credit worthiness of the borrower’s debtors. This is to ensure that the borrower’s customers can pay back the obligated invoices. A traditional line of credit would have a credit limit set by the accounts receivable size over a period of time, whereas an asset-based line would have a revolving credit limit that reflects the current accounts receivable. Also, an ABL line has to be monitored closely since the line often reflects daily changes. One must constantly review the status of the borrower’s accounts payable, accounts receivable and inventory. A traditional commercial line would not require this level of review.