Here are some of the current trends in asset-based lending in 2023:
- Asset-Based Lending (ABL) Benefits: ABL can provide several benefits to small businesses. Since loans are secured with business assets as collateral, lenders often accept lower credit scores. ABL financing arrangements typically come with fewer restrictions on how funds can be used, less stringent eligibility criteria, and few covenants in the loan structure. Many ABL structures don’t require fixed payments, allowing businesses to have a more flexible structure. Seasonal businesses often prefer ABL as their borrowing base expands and contracts with their business needs.
- Reporting Requirements: Despite fewer loan covenants, businesses are required to file regular reports on the status and value of their assets. Modern technology has made reporting simpler. Once a line of credit or business loan is established using a business asset as collateral, that asset cannot be used for another lending arrangement.
- Depreciation of Assets: The depreciation of assets can negatively affect available capital. Using physical assets like equipment also results in a lower Loan to Value (LTV) and borrowing base.
- Viable Option for Asset-Rich Businesses: ABL is a viable option for asset-rich businesses with inconsistent cash flow. It enables businesses to put idle assets to work. However, there are inherent risks with ABL, such as the risk of losing the assets offered as collateral for the loan. ABL could be more expensive than a conventional business loan, but if working capital is needed to support the business and ABL is the best option, the cost could be worth it.
- Market Growth and Value: The global asset-based lending market was estimated at $561.5 billion in 2021 and is expected to hit $1,721.38 billion by 2031, registering a CAGR of 12.2% from 2022 to 2031.
- Popularity of Lending-as-a-Service (LaaS) Platforms: Due to their ability to facilitate quicker, cashless, and paperless borrowing, LaaS platforms are becoming more popular. There is also a growing dependence on digital banking.
- Impact of the Pandemic: The asset-based lending market experienced a boost during the pandemic, as businesses started looking for loans to cope with the financial challenges arising from lockdowns. Some companies switched from cash-flow-based credit facilities to asset-based lines of credit to adapt to the situation.
- Type of Assets: By type, the receivables segment contributed to more than two-fifths of the global asset-based lending market share in 2021 and is projected to continue to lead by 2031. However, the “others” segment is expected to display the fastest CAGR of 15.5% throughout the forecast period.
- Interest Rate: The fixed rate segment accounted for the highest share in 2021. However, the floating rate segment is projected to portray the fastest CAGR of 14.2% during the forecast period.
- End-User: Large enterprises garnered the highest share in 2021, accounting for more than three-fifths of the global asset-based lending market revenue. However, the small and medium-sized enterprises segment is expected to cite the fastest CAGR of 14.8% from 2022 to 2031.
- Regional Trends: Asia-Pacific held the major share in 2021, garnering around two-fifths of the global asset-based lending market revenue# I’m going to perform another search to gather more diverse information on the topic.