The Future of Asset-Based Lending (ABL)

I’ve always been puzzled by the similar structure of ABL facilities across diverse companies in the consumer products industry. Asset based lenders generally provide loans to these companies of up to around 90% against accounts receivable and approximately 50% against inventory, with certain ineligibles considered.

What surprised me was that these advance rates remained fairly static and were only adjusted periodically based on the lender's monitoring of each account. A company’s eligible inventory was almost always treated with a single advance rate, rather than being analyzed for its quality at a SKU or item level.

Why didn’t lenders treat the best inventory (based on a lenders criteria) differently than items selling at lower margins or turning slower?

With today's technology, computing, and data analytics, I couldn't understand why a more modern approach wasn't utilized to assess a borrower's collateral on a more frequent basis. It's worth noting that most companies already employ systems capable of generating detailed reports on receivables, inventory, sales, customer orders, etc. but lenders have underutilized the potential of this data when managing lines of credit for these companies.

Lenders are starting to adopt new strategies to lend with greater precision. The rapid growth of e-commerce has accelerated this development, as lenders work with a new type of business that requires different funding structures. Lenders can tap into readily available borrower data to gain a comprehensive understanding of a company's business and its collateral.

By configuring lending platforms to utilize this data, borrowers can receive funding that is specifically tailored to their unique needs and is based on frequently updated information.

These new approaches will incorporate predictive analytics, machine learning, and AI, enabling lenders to lend with a deeper understanding of a borrower's future potential, rather than solely relying on historical and current information. We have reached a crucial turning point for asset-based lenders, where those who embrace technology and innovation will shape the future of the industry, while those who resist change may face challenges.

The rapid growth of e-commerce has accelerated this development, as lenders work with a new type of business that requires different funding structures.

The DataMetrics Platform empowers lenders to finance consumer product companies with increased transparency and analytics on their borrower's collateral and performance. Lenders can leverage algorithms to apply tailored advance rates to specific components of a borrower's inventory.

This approach rewards the best-performing inventory aggregated on a SKU-by-SKU basis. The Lender can incorporate higher advance rates on performing inventory and conversely protect itself from financing slow-moving SKUs.

Instead of relying on infrequent monitoring and outdated information, lenders can now utilize near real-time data for a clearer picture of their collateral. At the same time, Borrowers are motivated whereby they are rewarded based on inventory performance.

Let's embrace this opportunity to incorporate new technologies and strategies for positive disruption and usher in a new era of lending. The future belongs to those who leverage technology and innovation to enhance the industry. It's time to evolve and seize the potential that lies before us.