Asset-based lending is secured financing tied to the recoverable value of specific assets – mainly accounts receivable, inventory, and equipment – rather than enterprise cash flow. The borrowing base is the sum of eligible collateral, each with its own advance rate, less reserves. Advance rate is simply how much a lender will extend against the net, verified value of each collateral pool.
The US and Europe solve the same problem with different tools. The US leans on uniform secured transaction law, enforceable cash control, and fast workout mechanics. Europe runs the same playbook with more local variation, heavier documentation, and more friction in cash management. The payoff for borrowers and sponsors is clear: structure the mechanics well and you unlock predictably elastic working capital; miss the legal and operational details and liquidity gets stranded in ineligibles and reserves.
Scope, participants, and how facilities are set up
Collateral drives availability in an asset-based facility, so the asset mix defines the structure. Receivables and inventory drive most availability; equipment and, sometimes, IP add term capacity. Real estate usually sits in a separate mortgage facility. Parties include the borrower and guarantors, the ABL agent and lenders, appraisal and field exam firms, cash management banks, and intercreditor counterparties across the capital stack.
Structures vary by region. US split-collateral puts the ABL first on working capital and second on fixed assets, with the term loan flipping that order. Europe often uses super senior ABL ranking ahead of term debt on shared collateral up to caps and subject to standstills. If you are new to asset-based lending, that priority is what decides who gets paid first and how quickly you can recycle receivables during a workout.
Legal architecture that actually works in practice
United States: Uniform rules and enforceable control
Article 9 of the UCC lets lenders take a first-priority security interest over essentially all assets with a filing, and get priority over cash and securities accounts through control. Borrowers sign up for blanket liens with negative pledge and after-acquired clauses. Perfection runs through UCC-1 filings and deposit account control agreements. Enforcement follows non-judicial foreclosure and private sale norms. Intercreditor terms for split-collateral structures are well-trod and predictable.
United Kingdom: Fixed and floating charges
Lenders take an all-assets debenture with fixed charges where possible and a floating charge elsewhere. Charges register at Companies House. There is no statutory control over deposit accounts, so lenders use account bank letters and blocking mechanics. A qualifying floating charge allows appointment rights in administration. LMA-style intercreditor documents shape ranking and waterfall in super senior structures.
Civil law Europe: Local tools, local traps
Tools vary across civil law jurisdictions. France relies on Dailly assignments or fiducie for receivables and complex inventory pledges. Germany uses assignment by way of security and title transfer constructs, each sensitive to insolvency look-back and commingling. The Netherlands allows undisclosed receivables assignments subject to formalities. Local rules on anti-assignment clauses, notification to debtors, set-off, and retention of title drive eligibility and enforcement. Cross-border receivables raise conflict-of-laws questions on creation and perfection.
Intercreditor positioning: Who gets paid first and why it matters
US split-collateral keeps the ABL first on working capital and second on fixed assets, while a term loan flips that order. The waterfall lets the ABL recover and recycle from receivables during a going-concern workout. Cash dominion springs on objective availability or default triggers. Documentation tends to rhyme deal to deal, and intercreditor agreements are standardized enough to limit surprises.
Europe’s super senior ABL ranks ahead of term debt across shared collateral up to a cap. Intercreditor agreements set standstills, releases, purchase options, and payment waterfalls. Alignment on cash management with term lenders and account banks is a negotiation item. LMA models help, but inventory-heavy or multi-jurisdiction collateral still needs tailoring.
Borrowing base mechanics: Where liquidity is made or lost
Receivables eligibility and dilution
In the US, lenders exclude cross-aged AR, concentrations over set caps, intercompany, foreign receivables without insurance or legal comfort, government AR without assignment consent, and disputes. Dilution drives rate haircuts and reserves. Unnotified assignments are common; lenders can perfect with filings and pull notification when needed.
Europe follows the same logic with tighter gates. Anti-assignment clauses may bite in civil law jurisdictions unless statute overrides them. Some countries require debtor notification to perfect, adding operational steps and customer optics risk. Broader set-off and common retention of title in supplier contracts increase dilution. Expect more ineligibles, jurisdictional reserves, and exclusions where collections hit non-blocked accounts. Where appropriate, companies sometimes shift portions of AR to receivables factoring to improve immediate liquidity.
Inventory valuation and control
US ABLs lean on independent appraisals of net orderly liquidation value and UCC perfection. They exclude unperfected consignments, slow-moving SKUs by turn metrics, and inventory at third-party locations without bailee acknowledgements. Reserves cover freight, duties, obsolescence, shrink, and landlord liens.
Europe’s inventory posture is more variable. Non-possessory floating security often lacks teeth in civil law countries, pushing lenders to title-transfer constructs or pledges with uneven third-party effectiveness. Warehouse and bailee acknowledgements are harder to standardize. Retention-of-title claims frequently prime lender liens in insolvency. The result is higher ineligibles, steeper liquidation costs, and lower effective advance.
Equipment and IP
Both regions tend to run equipment as separate term loans tied to NOLV and useful life. IP-based lending remains bespoke. European lenders are cautious unless valuation and enforcement support pass local-law tests. If equipment is a major value driver, revisit assumptions with the lens used in equipment finance underwriting.
Reserves and discretion
US agents have permitted discretion to set reserves for taxes, payroll, rent, seasonality, and legal impediments. Europe adds hardwired jurisdictional reserves for debtor notification, account bank cooperation, and registry risks. Tie discretionary reserves to third-party appraisals or audited data whenever possible.
Cash control: How money actually moves
In the US, deposit account control agreements give the ABL agent control and daily sweep rights when triggers hit. Lockboxes reduce commingling. Triggers tie to availability, default, or covenant breach. Because control fixes priority, lenders can cut off competing set-off claims. The impact is high certainty of sweep timing and lower leakage risk.
In Europe, there is no universal control regime. Lenders use account bank letters that agree to block and waive set-off on notice. Strength varies by bank and governing law. Daily sweeps still happen but can lag due to platform constraints or the need to maintain customer-facing account stability. Cross-border accounts add complexity and lenders need a lawful basis to process transactions under GDPR. The impact is a longer cash conversion cycle in stress and higher reserves in weak-bank jurisdictions.
Monitoring cadence and field work
US monitoring is standardized. Borrowing base certificates arrive monthly, more often in stress. Field exams test eligibility and systems semi-annually for mid-risk names and quarterly for higher risk. Inventory appraisals refresh at least annually and more often in volatile sectors. Agents receive daily bank reports from controlled accounts and may ingest ERP feeds.
Europe uses the same tools with more translation – legal and literal. Field work adapts to VAT, invoice practices, and languages. Multi-ERP groups need more reconciliation. Local appraisers handle collateral in each jurisdiction. Data flows into lender systems must satisfy GDPR and transfer rules. Expect more prep work, higher third-party costs, and longer ramp.
Documentation and drafting posture
Core documents include the credit agreement, security agreements, cash management agreements, intercreditor, and collateral diligence letters, with local flavors for guarantees, resolutions, opinions, and tax language. In the US, agent counsel runs the drafts; borrower counsel negotiates eligibility definitions, discretion and reserve boundaries, and reporting cadence. DACAs largely follow agent forms, especially with relationship banks.
In Europe, local counsel coordination drives timelines. Account bank letters vary widely; securing firm set-off waivers and blocking mechanics is a critical path. Intercreditor alignment with term lenders, and sometimes trustees, requires early engagement. If the structure includes unitranche loans, plan the waterfall and enforcement playbook early.
Advance rates and the availability gap
US lenders underwrite higher effective advance on the same book because creation and perfection are uniform, cash dominion is enforceable, and appraisal markets are deep. Anti-assignment clauses rarely derail receivables eligibility. Inventory benefits from settled outcomes on consignments, PMSI filings, and landlord waivers.
European lenders price jurisdictional dispersion. Where anti-assignment binds, lenders exclude or notify, improving recoverability but straining customer relationships. Inventory structures in civil law systems remain operationally heavy, pushing conservative NOLV and higher reserves. Super senior distribution caps can compress usable availability in stress. The fast impact is that a structure that looks similar on paper can deliver 10 to 20 percent less real liquidity in Europe, and more in inventory-heavy sectors.
Economics, fees, and covenants
US ABLs float over SOFR; Europe prices over SONIA or EURIBOR. Availability grids govern margins. Super senior status and strong collateral usually produce lower pricing than security packages and guarantees found in unitranche or TLB-only structures.
Fees include commitment, upfront, monitoring, and pass-through third-party costs for exams and appraisals. Europe adds local counsel, registrations, and occasional notarial fees. Run-rate diligence costs rise with multi-country collateral and volatile inventories. ABLs avoid leverage tests and use springing fixed charge coverage or minimum availability triggers that bring on tighter reporting and dominion. Europe layers super senior basket controls and extra reporting to satisfy intercreditor duties. If leverage tests are proposed, align on the role of financial covenants early.
Accounting, disclosure, and audit
ABLs are secured borrowings under US GAAP and IFRS. Receivables stay on the balance sheet unless a true sale is achieved in a separate factoring program that meets derecognition tests. In many European assignments, derecognition fails, and proceeds book as debt. Borrowers disclose liens, encumbrances, and liquidity triggers such as dominion or minimum availability. IFRS reporters also provide encumbrance and maturity disclosures under IFRS 7.
Auditors scrutinize revenue recognition, returns, and credits, which feed dilution. When field exams flag control gaps or data quality issues, lenders may require audited collateral reports. Poor ERP hygiene turns into higher reserves and tighter reporting.
Regulatory overlays and data protection
KYC and beneficial ownership rules apply on both sides of the Atlantic. US lenders also work under the Corporate Transparency Act regime for beneficial ownership. European lenders align to AML directives and local registers. GDPR governs debtor and transaction data in European ABLs. Lenders need an appropriate lawful basis and transfer tools. US-hosted systems rely on the EU-US Data Privacy Framework for certified vendors or on standard contractual clauses. Sanctions and export controls apply universally; receivables tied to sanctioned parties are ineligible.
Common risks and edge cases to underwrite
- Commingling risk: Collections into non-blocked accounts create set-off and insolvency capture risk. US control agreements limit leakage; European blocking letters vary in strength.
- Anti-assignment and notice: Some civil law systems require debtor notice for perfection or honor anti-assignment. Expect operational load and customer optics.
- Retention of title: Supplier rights can prime lender claims without early vendor diligence and filings. This hits NOLV, eligibility, and reserves.
- Set-off and netting: Broader statutory set-off in Europe raises concentration haircuts, lowering effective advance on large customers.
- Cross-border enforcement: Conflicts of laws slow recoveries; the weakest-link jurisdiction sets the haircut.
- Intercreditor friction: Super senior caps or standstills can delay distributions to the ABL under stress.
Implementation timeline and critical path
US mid-market ABLs close in 6 to 8 weeks with domestic collateral and organized field work. The critical path includes field exams, inventory appraisals, DACAs and lockboxes, landlord and bailee waivers, and intercreditor finalization. Sponsors that pre-wire account control and vendor slots compress timelines. Treasury that lines up bank control documents early can save two weeks.
Europe runs 8 to 12 weeks with multi-jurisdiction collateral. Local security steps, translations, apostilles, and registrations add time. Account bank letters consume disproportionate bandwidth. Intercreditor with asset-based lending structures in Europe’s mid-market deals alongside unitranche or bond structures needs early work to avoid late-stage waterfall surprises.
Comparisons and alternatives
- Super senior RCF: Faster and cheaper to set up; less elasticity in stress without a borrowing base. Fit: thin or dispersed collateral.
- Receivables factoring: Can achieve IFRS derecognition with the right structure; higher all-in cost and customer notice. Fit: granular, high-quality AR and export portfolios.
- Unitranche loans: Add-on FILO tranches can unlock inventory or equipment but at a higher price. Fit: need speed and simplicity.
- Equipment term loans: Straightforward amortizing debt against plant. Fit: strong fixed assets, weaker inventory.
Negotiation levers that move availability
- Cash management: In the US, push for full DACA coverage and objective dominion triggers. In Europe, standardize account bank letters, tighten set-off waivers, and minimize carve-outs.
- Eligibility clarity: Define dilution, disputes, and credit memo rules precisely. Tie discretionary reserves to third-party appraisals or audited data.
- Concentrations and foreign AR: Push higher caps for investment-grade customers. Broaden foreign eligibility with credit insurance and loss-payee endorsements.
- Inventory analytics: Use SKU-level turns and obsolescence data to support higher NOLV. Secure bailee and warehouse letters early.
- Intercreditor terms: In Europe, narrow super senior caps, shorten standstills, and clarify block release mechanics to protect ABL cash recycling.
Sponsor playbook: Quick go or no-go screens
- Collateral geography: If a material slice of AR sits where anti-assignment binds and no workaround exists, assume heavier ineligibles and haircut-driven drops in availability.
- Cash control: If the main bank will not sign acceptable blocking letters, either increase reserves or move accounts before closing.
- Vendor terms: Widespread retention of title, consignment, or tolling will cut inventory lendability; rationalize terms or accept lower advance.
- Data quality: If AR aging, dilution, and SKU-level reporting are weak, expect higher reserves, more frequent exams, and slower close.
- Intercreditor posture: If term lenders resist standard super senior protections, model reduced availability and slower enforcement.
A practical 48-hour dominion drill
As an original, practical step, run a fast dominion drill before signing. Day 1, map every receipt path from customers to accounts, including currencies and cross-border sweeps. Day 2, test a mock sweep with account banks, confirm reporting latency, and quantify funds that bypass controlled accounts. The drill exposes leakage, slow banks, and ERP posting lags. Fixes here often add more real availability than negotiating another 50 basis points of headline advance.
What wins where
US with domestic collateral, diversified customers, strong cash management, and stable inventory: ABL delivers low-cost, elastic working capital with predictable enforcement. Europe with UK-centric collateral, supportive account banks, and LMA-aligned term lenders: super senior ABL works; model lower availability and longer setup, and expect jurisdictional reserves. Europe with broad civil law exposure or heavy customer concentrations with strong set-off: consider a hybrid – a UK super senior RCF plus insured AR factoring in tougher jurisdictions – rather than a single ABL.
Governance, operations, and data retention
Assign a working-capital lead to own collateral hygiene, borrowing base preparation, reserve challenges, and vendor or warehouse documentation. Treasury should simplify bank account structures to speed sweeps and limit carve-outs. Bake field exams and appraisals into the calendar and keep readiness files for reporting windows. If using US-hosted systems for EU debtor data, monitor data-transfer posture. Align intercompany charges and guarantees with transfer pricing to protect interest deductibility. When the deal closes, archive collateral data and reporting with index, versions, Q&A, user access, and audit logs; hash the archive, apply defined retention, instruct vendor deletion with a destruction certificate, and keep legal holds paramount over deletion.
Key Takeaway
US ABL benefits from harmonized law, enforceable cash dominion, and standardized monitoring, which leads to higher effective advance and faster execution. Europe can deliver solid ABL – especially in the UK and Benelux – but multi-jurisdiction exposure, account-control limits, and debtor-protection rules push lenders to stricter eligibility and higher reserves. Underwrite to availability, not headline advance rates, and price the operational cost of field work and data plumbing. Early choices on cash management, intercreditor alignment, and jurisdictional scope decide whether the facility frees cash or leaves it stranded in ineligible collateral.