Bank asset-based lenders are cheaper, but they lend inside a regulated credit box: they want a company that is profitable or close to it, with manageable concentrations and a clean field exam. Non-bank asset-based lenders, finance companies and private credit funds, cost more and usually charge more to leave early, but will lend through losses, a turnaround, heavy customer concentration or collateral a bank would exclude. The right choice depends on where the company is today and how soon it could qualify for a bank. A non-bank line is often the bridge that gets a company back to one.
- Bank ABL
- Lower cost, tighter credit box, often tied to a deposit relationship
- Non-bank ABL
- Higher cost, more tolerance for losses, concentrations and unusual collateral
- Same mechanics
- Borrowing base, field exams, borrowing base certificates, cash dominion
- Key difference to price
- Early termination fees and minimums, usually heavier at non-banks
- Typical path
- Non-bank while the company rebuilds, bank once earnings support it
Same product, different lenders
An asset-based line works the same way whoever provides it. The lender sets a borrowing base from eligible receivables and inventory, advances a share of each, typically 80% to 90% of eligible receivables and up to 85% of the net orderly liquidation value of inventory, deducts reserves, and verifies the collateral through field exams and appraisals. Collections usually run through a lockbox under cash dominion.
The difference is the lender behind it. Bank ABL groups are units of commercial banks. They fund with deposits, which makes their money cheap, and they answer to bank regulators, which makes their credit box narrow. A loan to a company with weak or negative cash flow can draw criticism from bank examiners even when the collateral is good, so bank ABL groups generally want a borrower that can cover its fixed charges, or is close to it.
Non-bank ABL lenders are independent finance companies and asset-based funds, some of them part of larger private credit managers. Their money costs more, they are not examined the way banks are, and they are built to lend where banks will not. Their protection comes almost entirely from the collateral and from how closely they monitor it.
How they compare
| Bank ABL | Non-bank ABL | |
|---|---|---|
| Pricing | Lower spreads; see how revolver interest is priced | Higher spreads, and often a minimum interest or minimum usage charge |
| Advance rates | Within the typical ranges, set by the field exam | Similar headline rates; more willing to count borderline collateral or allow a temporary over-advance |
| Earnings required | Profitable or close to it; a springing fixed charge coverage covenant that can realistically be met | Losses tolerated if the collateral and the plan hold up |
| Covenants | Usually a springing fixed charge coverage covenant, sometimes more | Often fewer financial covenants; a minimum availability requirement or availability block instead |
| Concentrations and unusual collateral | Concentration caps applied strictly; foreign, government or progress-billed receivables often excluded | More willing to lend against a large customer, foreign receivables, machinery or other assets |
| Reporting and monitoring | Monthly certificates, periodic field exams | Often weekly certificates and more frequent exams, especially early on |
| Relationship requirements | Usually requires operating accounts and treasury services at the bank | Rarely requires deposits beyond the collection accounts |
| Leaving early | Early termination fees possible, usually modest and short-lived | Early termination fees common, larger, stepping down over the term |
A bank ABL line is cheaper to hold. A non-bank line is often the one available. Price both the rate and the cost of leaving.
Where a non-bank lender will go that a bank will not
The strongest reason to use a non-bank lender is that the company does not fit a bank's box, for reasons that are temporary or that a bank simply cannot hold. Situations where the two usually part ways:
| Situation | Typical bank ABL response | Typical non-bank ABL response |
|---|---|---|
| A loss year, with a plan to return to profit | Declines, or offers a line only with heavy reserves | Lends against the collateral, with close monitoring |
| A bank line cut, frozen or not renewed | Cautious about taking over a credit another bank is exiting | Will underwrite the reason and refinance the balance |
| One customer far above the concentration cap | Excludes the excess from the base | May allow a higher limit for a strong customer |
| Rapid growth outrunning earnings | Limited by fixed charge coverage | Sizes to the collateral as it grows |
| Machinery, equipment or real estate alongside receivables | May exclude or treat separately | Often adds a term loan piece against them in the same facility |
| Refinancing merchant cash advances or other short-term debt | Often declines until the history is cleaner | Will refinance if the collateral covers it |
Each row is a judgement call, not a rule. Some banks will stretch for a long-standing customer, and some non-bank lenders run tighter than a bank in particular industries. Companies coming off losses should also read asset-based lending for unprofitable companies, and those whose bank has pulled back, what to do when a bank cuts or freezes a line.
The costs that do not show up in the rate
Comparing a bank quote and a non-bank quote on the interest spread alone understates the gap. The full cost of an asset-based line includes several fees, and non-bank lenders use more of them.
- Unused line fees on the undrawn commitment, charged by both; see what an unused line fee is.
- Minimum interest or minimum usage charges, more common at non-banks: if average borrowings fall below a floor, you pay interest as if you had borrowed the floor. A company that borrows little in its slow season can pay for money it did not use.
- Field exam and appraisal costs, paid by the borrower, and more frequent where monitoring is closer.
- Early termination fees if you refinance before maturity, usually a declining charge on the commitment. These matter most for a company that expects to move to a bank as soon as it can.
- Collateral monitoring and servicing fees, charged by some non-bank lenders for the work of processing frequent certificates.
Put every one of these into a single all-in cost at the level of borrowing you actually expect, and compare offers on that. Interest rate vs all-in cost shows how. A non-bank line that costs more per year but carries a short, modest termination fee can be cheaper over the period you will actually hold it than one with a lower rate and a long lock.
Choosing, and planning the exit
The decision turns on a few questions, and answering them honestly usually settles it.
- Could a bank lend to the company today? If the company covers its fixed charges, has a clean aging and ordinary concentrations, a bank ABL line is the cheaper answer and worth pursuing first.
- If not, why not, and for how long? A loss year with a clear cause and a recovery under way is a temporary problem. A structural one, such as a single customer that will always dominate sales, may keep the company with non-bank lenders.
- How much availability does the business need? If a bank would lend but exclude so much collateral that the line is too small for peak working capital, the larger non-bank line may be worth its cost. Sizing a working capital line shows how to work out the peak.
- When could you leave, and what would it cost? Negotiate the termination fee and its step-down with the exit in mind. A fee that falls away once earnings recover, or on a refinance with a bank, is worth asking for.
Many companies use a non-bank line as a bridge: it replaces a bank that pulled back, or a factoring arrangement the company has outgrown, and it funds the business while earnings recover. After a year or two of clean reporting and improved results, the company refinances into a bank ABL or a cash-flow line. The borrowing base certificates and field exams from the non-bank period become the track record the bank underwrites.
What both will ask for, and how Transparent compares them
The file is the same for either kind of lender. Transparent's checklist for a line of credit or asset-based facility: the AR aging by customer with days outstanding, the AP aging, balance sheet, P&L, a year-to-date P&L through last month-end, the debt schedule and UCC position, an inventory report if inventory is part of the base, and optionally bank statements and two to three years of business tax returns.
Of the 1,800+ lenders in Transparent's book, 235 write asset-based loans and lines, banks and non-banks both, and they differ widely on advance rates, eligibility, reserves, reporting and exit fees. Transparent builds the lender package, with the financing model, lender presentation and blind teaser, in a day once the documents are in, so both kinds of lender can quote on the same file and be compared on all-in cost and terms. See the lender book for how it is organized.
Common questions
- Is a non-bank ABL lender a sign my business is in trouble?
- No. Non-bank lenders also serve healthy companies with collateral or concentrations a bank will not count, or that need more availability than a bank would give. Lenders read the reason, not the lender type.
- Do non-bank lenders advance more against receivables?
- Headline advance rates are often similar, typically 80% to 90% of eligible receivables. The difference is usually in eligibility: a non-bank may count collateral a bank excludes, or allow a temporary over-advance, which produces more availability.
- Why do non-bank ABL lenders charge early termination fees?
- Their costs are front-loaded, in exams, appraisals and setup, and their best borrowers are the ones most likely to refinance with a bank once they recover. The fee protects the return. It is negotiable, particularly its length and step-down.
- Will a bank ABL require me to move my accounts?
- Usually yes. Bank ABL groups commonly require operating accounts and treasury services at the bank, and the lockbox sits there too. Non-bank lenders need control of the collection accounts but rarely the rest of the relationship.
- Can I move from a non-bank line to a bank line later?
- Yes, and many companies plan for it. A record of accurate borrowing base certificates, clean field exams and recovered earnings is what a bank will underwrite. Negotiate the termination fee with that move in mind.