In this article, Ben Roden explains why asset or collateral-backed lending is becoming an important option for CFOs, particularly during periods of change.
A clear understanding of asset liquidity and how to present it to capital markets can significantly improve the outcome of a refinancing process.
CFOs are under increasing pressure to secure funding structures that support growth, profitability, and future earnings.
Traditional lending options such as amortising loans or cash flow lending are not always suitable. As a result, asset-backed lending (ABL) is becoming more widely used.
These structures are particularly relevant for seasonal, transitional, or turnaround businesses. They also provide flexibility and often involve lighter covenant requirements.
However, ABL requires both lenders and borrowers to understand the company’s assets in detail and how they are used within the business.
A structured approach can significantly improve refinancing outcomes.
CFOs should invest time in preparing, presenting the business clearly, and anticipating lender requirements. A strong understanding of the company’s collateral, from a lender’s perspective, is critical.
Early preparation allows CFOs to control the narrative, reduce pressure during the process, and improve engagement with potential lenders.
Availability is a core concept in asset-backed lending.
It refers to the portion of asset value that can be used as collateral and is influenced by three factors:
Availability is typically assessed by independent specialists. This independence helps build trust between lenders and borrowers and supports a smoother transaction process.
Once established, availability is monitored against regular financial reporting. This allows loans to adjust over time and provides flexibility for businesses undergoing change or growth.
Accounts receivable is often the starting point for asset-backed lending.
Its valuation is generally based on the collectability of invoices. Eligibility is determined using standard industry criteria, and lenders may require periodic reviews or field audits.
Inventory requires a different valuation approach.
For lending purposes, Net Orderly Liquidation Value (NOLV) is used rather than balance sheet values. This involves analysing stock at a detailed level, including raw materials, work in progress, and finished goods.
Because NOLV reflects potential recovery in a sale scenario, inventory can often support additional borrowing capacity beyond receivables alone.
Plant and equipment can also contribute to overall availability.
Valuation is typically based on secondary market demand and expected realisation costs. Assets that are mobile and have active resale markets are generally more attractive to lenders.
Fleet assets, in particular, are often preferred due to their scale and liquidity.
Preparing for refinancing through independent valuation and diligence gives CFOs better control over the process.
It introduces a trusted advisor who understands the business and can communicate effectively with both lenders and borrowers.
This allows the business to present its position clearly and strengthen its case when approaching capital markets.
Lenders will still conduct their own due diligence. However, having an established narrative and supporting analysis can improve efficiency and alignment throughout the process.
Decisions such as liquidation timelines or whether to present assets on a going-concern basis can also influence outcomes and should be considered early.
In our experience, CFO’s who plan and prepare for a refinancing event with detailed and professionally presented information achieve timely and efficient outcomes.
Hilco provide professional support in the deep understanding assets on the balance sheet and its presentation to credit departments for smooth approvals. If you’d like to learn more about how we deliver purposeful and accurate valuation and diligence reports, every time, talk to our Valuation & Diligence Services team at Hilco Global.
