Asset-Based Lending for Manufacturers
ABL for manufacturers sizes availability to eligible receivables, inventory by stage, and often equipment. A manufacturer’s working capital sits in three places at once: invoices after shipment, inventory that is still raw, work-in-progress (WIP) or finished, and the equipment that produces the next run. Asset-based lending is built for that mix. A cash-flow line treats the plant like any other EBITDA borrower. That is why a manufacturer can be “full” on a bank cap and still have a base that supports more availability.
Terms, advance rates, and facility size sit on the Asset-Based Lending page.
How This File Is Underwritten
The lender sizes the line to eligible receivables and eligible inventory.
- AR: Eligible invoices are usually shipped and accepted, not progress billings, not bill-and-hold, not retainage, not amounts due from affiliates. Customer concentration and contra accounts (you buy from the same name you sell to) come off the base.
- Inventory: Raw, WIP, and finished goods are not one bucket. Finished and fast-turn raw get more credit than WIP, custom jobs, or aged parts. Slow-moving SKUs and cancelled-job remnants are where availability disappears.
- Equipment: Machinery can support extra availability or a term piece next to the revolver. It does not fix a weak AR and inventory story by itself.
- The production cycle: Long WIP, job-shop custom work, and milestone billing look like a manufacturer and underwrite closer to a contractor. Short-cycle, repeat SKUs underwrite closer to a distributor that happens to make the goods.
Reporting is a borrowing base, agings, inventory by category (and often by plant), and usually a field exam. Cycle counts and how WIP is valued matter as much as the P&L.
What Usually Binds
- Finished-goods and eligible raw inventory: Often the swing factor vs a pure AR line.
- WIP eligibility: Frequently limited or excluded on custom or long-cycle work.
- AR ineligibles: Progress bills, bill-and-hold, retainage, offsets.
- Customer and SKU concentration: One OEM or one part number can cap the base.
- Equipment: Helps the stack. Rarely sets revolver availability by itself.
- Cash flow: Still reviewed for ongoing operations. It is not the primary sizing test.
What To Send First
- AR aging and AP aging
- Inventory by raw / WIP / finished, with aging or turns if you have it
- Open order book or backlog summary
- Last year-end financials and current interim
- Debt schedule (lines, equipment loans, leases)
- Top customers and any contra vendors
- List of major machinery if you want that in the structure
- Bank statements and the current line terms (cap, unused, dominion)
The first question is whether shipped AR plus eligible stock can support the revolver you need, and whether WIP should even be in the conversation.
When This Is The Wrong Product
If the company bills by milestone, holds product for the customer, or lives on retainage, a large share of “AR” will not enter an ABL base. Clean the billing practice or look at a structure built for that cycle.
If there is almost no inventory or equipment story and the need is a term loan against earnings, do not force a borrowing base. Use cash-flow or SBA sizing.
If the book is really just invoices to creditworthy customers and the plant is not part of the collateral story, invoice factoring may be cleaner than a full ABL.
FAQs
Does WIP count?
Sometimes, at a lower rate, and only if it is identifiable and not trapped in a cancelled or custom job. Many lenders treat WIP as the first thing to haircut.
Can equipment sit in the same facility as the revolver?
Yes. It is often a term component next to the working-capital line. The revolver still turns on AR and inventory.
We job-cost everything. Is that a problem?
No, if you can show what is raw, what is in process, and what has shipped. It is a problem if “inventory” is one number and no one can tie it to jobs.
Will there be a field exam?
Expect one on a manufacturer, especially if inventory and machinery are in the structure.