ABL for Manufacturers
Manufacturers carry working capital in multiple places, including 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. Eligible receivables, eligible inventory, and often equipment are what drive how the file gets underwritten. 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
Underwriting starts with the assets that will support the facility, separating what collects cleanly, what is sellable, and what is machinery, across receivables, inventory, and equipment.
AR: Eligible invoices are usually shipped and accepted. Progress billings, bill-and-hold, retainage, and amounts due from affiliates are not. Customer concentration and contra accounts, meaning purchases from or sales to related or affiliated companies, can reduce the borrowing 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, though it does not fix a weak AR and inventory story by itself. Lenders still look to receivables and inventory as the core of the base.
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.
The goal is not to maximize the headline facility size. It is to build a borrowing base that reflects what will actually ship, collect, and convert, not what the plant is worth on paper. Reporting will include a borrowing base, agings, inventory by category and often by plant, and usually a field exam, since 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, and finished, with aging or turns
- Open order book or backlog summary
- Last year-end financials and current interim
- Debt schedule, including lines, equipment loans, and leases
- Top customers and any contra vendors
- List of major machinery in the structure
- Bank statements and the current line terms, including cap, unused, and dominion
The first question is whether shipped AR plus eligible stock can support the revolver the business needs, and whether WIP should even be in the conversation.
When ABL Is Not the Right Fit
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, since a stalled or reworked job is much harder to value than raw material or a finished unit ready to ship.
Can equipment sit in the same facility as the revolver?
Yes, often as a term component running alongside the working-capital line rather than folded into it. The revolver still turns on AR and inventory, so the equipment piece is priced and sized separately even when both close at the same time.
We job-cost everything. Is that a problem?
No, if the company can show what is raw, what is in process, and what has shipped. It becomes a problem only when inventory is reported as a single number with no way to tie it back to specific jobs, since that is exactly what a field exam is built to test.
Will there be a field exam?
Expect one on most manufacturing files, especially when inventory and machinery are both part of the structure. Cycle counts, WIP valuation, and how the plant tracks its own stock are hard to confirm from a spreadsheet alone, which is why the exam tends to happen early rather than late.