How Asset-Based Lending Can Drive Growth and Improve Cash Flow for Consumer Product Businesses

As your consumer product business expands, managing cash flow becomes increasingly complex. Whether you're ramping up inventory, launching new product lines, or scaling across multiple sales channels, cash flow can quickly become a pain point. That's where asset-based lending (ABL) comes in. It provides the liquidity you need to fuel growth and keep operations running smoothly, without the lengthy delays of traditional financing options.

At Assembled Brands, we specialize in flexible asset-based lines of credit, enabling you to leverage your inventory and/or accounts receivable as collateral. In this guide, we’ll explain how ABL works, why it’s an ideal solution for growing consumer product businesses, and how you can use it to optimize cash flow and growth for your business.

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What is Asset-Based Lending (ABL)?

Asset-Based Lending (ABL) is a financing option that enables you to utilize your business assets, such as inventory and accounts receivable, as collateral to secure the capital you need for growth. For instance, if your business builds and holds inventory for multiple months and sells to wholesalers/retailers that require payment terms, asset-based financing lets you access capital against those assets. This can be especially helpful for businesses that are scaling, giving you the working capital you need to keep expanding.

Here’s how it works:

• Accounts Receivable: If your business has outstanding invoices from customers, ABL allows you to use those receivables as collateral to access immediate cash. This form of collateral is considered the highest quality for lenders and can be particularly valuable if your customers pay on extended terms. 
• Inventory: Your stock—or finished goods (but also in some cases raw and work-in-progress materials)—also serves as collateral. If you carry substantial inventory, ABL provides the opportunity to tap into those assets to fund your operations and expansion. This is particularly helpful for e-commerce-specific companies that do not have any accounts receivable. Not many lenders or banks lend against inventory only (Assembled Brands does!)

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Why is ABL a Good Option for CPG Businesses?

Emerging consumer product businesses often face fluctuating cash flow, especially when scaling across multiple sales channels like DTC, omnichannel, or wholesale. ABL offers the flexibility and speed you need to address these challenges and support growth in the following ways:

1. Unlock Capital Without Giving Up Equity: Traditional financing options like venture capital often come with the trade-off of giving up equity. ABL, however, lets you access the capital you need by leveraging your assets, meaning you can maintain control over your business as it grows.
2. Manage Fluctuating Cash Flow: Growing businesses often experience fluctuations in cash flow, especially if you're operating across different sales channels or facing seasonal demand. ABL helps smooth these fluctuations by offering a revolving line of credit based on the value of your assets, providing liquidity when you need it most.
3. Flexible Funding for Inventory and Growth: Whether you're purchasing more inventory, funding new marketing campaigns, or expanding product lines, ABL gives you access to flexible capital based on the value of your inventory and accounts receivable. This is especially valuable when you need to stock up on bestsellers to meet increasing demand or prepare for peak seasons. It is important to note that some banks and lenders will limit how you can spend the funds they lend by restricting it to inventory and operations vs. marketing and sales spends.
4. Quick Access: Unlike traditional loans, which can take months to process, ABL offers faster access to capital. You can often receive funds within weeks, which is essential when you need quick access to liquidity for operational or growth opportunities.

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When Should Your Business Consider ABL?

ABL is a powerful tool, but it’s best suited for businesses with stronger inventory and accounts receivable assets. Here are some key signs that ABL might be the right solution for your business:

• You Have Strong Accounts Receivable: If your business is growing and has a large volume of receivables, ABL helps unlock cash from these unpaid invoices, enabling you to continue operations without waiting for customer payments.
• You Hold Significant Inventory: If your business carries significant inventory, ABL allows you to tap into that value and use it to fund purchases, production, or expansion.
• You Operate Across Multiple Sales Channels: If your business sells through DTC, wholesale, or omnichannel platforms, ABL can help you manage liquidity across all revenue streams, smoothing out cash flow challenges that arise from multi-channel sales.
• You Are Scaling Quickly: If you're seeing rapid growth in sales, expanding into new markets, or increasing production capacity, ABL can provide the working capital needed to keep pace with that growth without the delays of traditional financing.

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How to Structure an ABL Deal for Your Business

Once you’ve decided ABL is the right fit, it’s time to work with a lender to structure a deal that aligns with your business’s unique needs. Here are some key elements to consider when setting up your ABL facility:

1. Advance Rates

The amount you can borrow will depend on the value of your inventory and accounts receivable. Lenders typically advance:

• Inventory: Up to 60% (some other lenders like Assembled can stretch higher)  of the value of your eligible inventory, depending on factors like its sellability and how easily it can be liquidated.
• Accounts Receivable: Up to 85% of the value of your receivables, with the exact percentage based on the quality and aging of the invoices.

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2. Revolving Line of Credit

ABL facilities are typically structured as revolving lines of credit, meaning you can draw funds, repay, and borrow again up to your credit limit. Your borrowing base is typically calculated every month by taking your eligible accounts receivable and eligible inventory and multiplying them by their respective advance rates. As you sell more goods, invoice customers, and/or build inventory, your borrowing base increases. When those receivables are collected and used to pay down the line, your availability resets, creating a self-replenishing source of working capital that flexes with your business. 

For example, if you borrow $500K against $1M in eligible AR and collect $300K, your availability increases by $300K, ready to support inventory buys, marketing, or operations. 

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3. Interest Rates and Fees

Understanding how ABL is priced helps you assess both its cost and value. Asset-based lending typically uses a floating interest rate, tied to benchmarks such as the EFFR (Effective Federal Funds Rate), SOFR (Secured Overnight Financing Rate), or Prime Rate.

Interest is charged only on the drawn amount or principal, not the full line size. This is a key distinction from options like Merchant Cash Advances (MCAs), which apply flat fees to the initial amount you borrow, regardless of any principal repayments. 

A 1% monthly fee—like those often charged by MCAs—does not equal 12% APR. Because it’s applied to the original amount borrowed regardless of repayment, the effective annual cost is typically well over 24%. With ABL, interest accrues only on the outstanding principal, so if you repay more—or repay faster—you pay less.

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In addition to interest, lenders may charge:

• Origination fees (one-time, for setting up the facility)
• Monitoring or collateral management fees (recurring, based on reporting and audit requirements)
• Unused line fees (in lieu of monitoring fees, for maintaining undrawn availability)
• Diligence fees for field exams, inventory appraisals, and legal fees.
• Early Termination Fees (usually a % of your total facility size if you terminate your agreement before the expiration date)

These fees vary depending on the size and structure of your facility, and should be outlined clearly in your term sheet. Knowing what to expect ensures you can accurately compare financing options and avoid hidden costs.

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4. Repayment Flexibility

Repayment on an ABL facility aligns with your cash flow. As you collect on receivables or sell inventory, you repay the line of credit, freeing up availability to draw again. This makes it easy to reinvest capital as your business cycles through working capital needs. 

Most banks and lenders require a lockbox, where customer payments are routed through a lender-controlled account. The lender applies funds to the loan first, which can delay access to cash and add operational friction. Assembled Brands does not require a lockbox. You maintain control of your collections and repay on a set schedule, keeping cash flowing directly into your business.

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Best Practices for Managing Your ABL Facility

To maximize the effectiveness of your ABL facility and keep cash flow healthy, follow these best practices. By managing your assets wisely, you can ensure continued access to capital for growth and expansion:

• Monitor your accounts receivable: Regularly track the aging of your receivables and ensure timely collection from your customers. Healthy, current receivables will make your borrowing more efficient and cost-effective.
• Keep accurate inventory records: Ensure that your inventory management system is up to date and accurately reflects the value of your stock. Make sure to capture goods being inbounded and all outbound in real-time. Proper inventory control will help maximize the value of your ABL line.
• Assess cash flow regularly: Even with access to ABL, it's important to stay on top of your cash flow. Regularly assess your financial health and make sure you're using borrowed capital wisely and efficiently.
• Close your books every month: Closing your financial books on a monthly basis ensures accurate, up-to-date reporting of your accounts receivable and inventory. This timely financial snapshot supports accurate borrowing base calculations, keeps your lender informed, and helps you identify any discrepancies early, keeping your facility running smoothly. 

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Conclusion

If you're an emerging consumer product business that is scaling from an inventory and accounts receivable standpoint, asset-based lending can help fuel your growth. It offers flexible, timely access to capital, enabling you to manage day-to-day operations and seize new opportunities without the red tape of traditional financing. 

Ready to take your business to the next level? Apply today to see how our tailored ABL solutions can unlock the capital you need for sustained growth.

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