Asset based lending

Who can use ABL?

ABL is available to individuals and businesses whether the business is a sole trader, a partnership or a limited company.

What security does the lender take?

A charge will be taken over a specific asset such as the debts owed to the borrower or a chattel mortgage over a specific piece of machinery or equipment owned by the borrower.

If the borrower is a limited company then the lender should register a charge against the company at Companies House.

If there is a pre-existing charge registered at Companies House, such as where the borrower company has a bank loan or overdraft facility, then the lender should obtain a deed of waiver and priority from the prior charge holder.

If the borrower is either an individual or a partnership, then the lender should consider registering the loan at the Bills of Sale Registry.

Valuations

Where a lender is securing the loan against a specific asset such as a piece of machinery or equipment, it is prudent for the lender to obtain a valuation of the asset based on it being a forced sale value, that is at a reduced value to its current value. The lender should not lend more that the valuation.

If the borrower does not repay the loan then how does a lender enforce its asset based loan?

Additional security for lender

If a lender seeks additional security then it is often in the form of a guarantee. For legal reasons any such guarantee should be by deed and should be drafted as a guarantee and indemnity.