The New Era of Old-School ABL

As published in the Turnaround Management Association’s Journal of Corporate Renewal – Vol. 39 | No. 03 | April 2026

WRITTEN BY BETTY HERNANDEZ

 

They don’t build them like they used to. While the phrase typically describes products such as cars and appliances, for restructuring professionals with an old-school approach to asset-based loans, the adage comes to mind when reading headlines about collateral fraud and the commoditization of asset-backed finance products. In the early days of ABL, more than three decades ago, without the help of sophisticated technology, these professionals honed the craft of interpreting collateral values received through field exams and learned the nuances of industry-specific dynamics to structure liquidity solutions that fit the rhythms of clients’ business operations and cash flow cycle. These ABL veterans valued long-term relationships with management teams, business owners, accountants, and other centers of influence. When a business owner or CEO requested a modification to their agreement, they wanted to know that they can pick up the phone and speak to someone who can address their request. They prided themselves on the speed of execution and a commitment to helping clients manage their working capital requirements as well as supporting their growth goals.

Over the decades that have followed, old-school ABLs adopted technology that has increased efficiency and provided new risk management insights, as well as greater access to capital, resources, and a broader suite of financing tools to offer clients. The best way to remain a stable, long-term capital provider to clients is through loss prevention via collateral valuation, verification, and real-time monitoring. A longstanding focus on corporate asset-based lending—underwriting the borrower, including both its collateral and business projections—has enabled a quick and reliable execution of customized financing facilities.

Over the past few years, traditional corporate asset-based lenders haven’t received the same level of broad media and investor attention as many of the large asset managers who’ve been making headlines with their massive capital raises for cash flow lending and push into the most scalable segment of private credit— asset-backed finance. However, the defaults that have recently dominated headlines show the staying power of a “roll up our sleeves” direct approach to traditional corporate asset-based lending. As seen today, the lack of capital deployment restraint and the loosening of underwriting standards by some market participants have reduced general stability within the private credit market. It’s important to note that the average annualized loss rate for the ABL market over the past 20 years has been less than 50 basis points, according to the SFNet ABL Index. The continued di minimus loss rate for the lending strategy not only speaks to the effectiveness of the old-school ABL methodology but also enables those lenders to remain a stable and consistent financing source for borrowers across market cycles. While private credit broadly has low barriers to entry, this does not hold true for old-school ABL, which requires both a sufficiency of capital and experienced personnel and infrastructure to actively manage collateral-based facilities throughout the life of a financing.

Recently, on the heels of some high-profile cases, the investment community has grown concerned about the increasing complexity (and lack of transparency) in asset-backed finance strategies and the lack of collateral coverage discipline from seemingly indiscriminate new entrants who don’t have the infrastructure and experience in analyzing and managing collateral for asset-based loans. In contrast, old-school ABL benefits from a series of characteristics that play a continuing vital role in the approach to providing liquidity and growth capital to asset-rich companies in numerous ways.

Alternative to Traditional Banking: In the early days of old-school ABL, regional banks were the dominant players in the asset-based loan market. Nonbank lenders created a business model centered on providing liquidity solutions traditional lenders couldn’t, even in the days of looser bank regulation. Following the Great Recession, when banks first began pulling out in response to greater regulation and capital requirements, nonbank asset-based lenders found their specialized skill set in increasingly higher demand by borrowers who didn’t fit the banks’ lending frameworks. Due to the capital charges associated with lending to businesses with lower or no rating, insufficient EBITDA, or negative net income, it has become more difficult for traditional commercial banks to look through a company’s financials to the value of the underlying collateral when assessing their ability to service loans. Recently, as private credit has ballooned, this dynamic has expanded into the capital markets for financing large private corporates and public companies as well.

 

Banks simply don’t have the credit bandwidth of private credit firms with embedded ABL underwriting and monitoring infrastructure. Conversely, old-school ABL firms have the experience, flexibility, and staffing to make judgment calls to structure financing facilities that are effective for the borrower while maintaining protections for the lender.

 

While banks are a valuable partner to borrowers across a range of products, they simply don’t have the credit bandwidth of private credit firms with embedded ABL underwriting and monitoring infrastructure. Conversely, old-school ABL firms have the experience, flexibility, and staffing to make these judgment calls that enable them to structure financing facilities that are effective for the borrower while maintaining protections for the lender. The white space in nonbank, flexible lending has attracted many new entrants to this niche within private credit. In contrast, old-school lenders have been honing their trade for over three decades.

Differentiated from Asset-Backed Finance: Traditional asset-based lending generally involves two parties— the lender (or group of lenders) and a single operating company, with a bilateral credit agreement established between them. The lender relies on their assessment of the underlying collateral, as well as the strength of the management team and business model, to determine the loan’s structure. Conversely, in asset-backed finance, the loan is secured by a pool of assets, such as auto loans, consumer receivables, or mortgages, in a bankruptcy remote structure. The lender’s exposure is not to a single business but to a pool of assets. In traditional asset-based lending, the lender has greater visibility into the performance of the company and maintains an ongoing dialogue with management, in support of the business’ liquidity needs. Monitoring and covenants relate to both the business and its collateral performance.

Focus on Collateral Value: The key to private credit broadly is to create loan structures that meet the needs of the borrower while also providing capital preservation and returns to the lender. ABL’s focus on collateral provides a clear path for meeting both objectives. Traditional asset-based loans rely on the value of the collateral (e.g., receivables, inventory, machinery and equipment, real estate) rather than the cash flows of a borrower. Understanding the true value of collateral and how collateral and cash is generated throughout the working capital cycles of the business, as well as the liquidation value of collateral and ability to run that process in an orderly fashion, is essential to constructing loans that facilitate a business’s operations while protecting the lender. Lenders who are more liberal on their view of collateral coverage may provide stretch pieces and greater leverage upfront, but the enduring ability for them to provide ongoing capital is fragile.

Not every situation is the same. Each deal is bespoke and tailored to fit the borrower’s needs. When a borrower requests an increase in accounts receivable concentration or advance rate, or the lender is proposing on debtor-in-possession financing, loan officers and senior management teams know what to look for to make the appropriate risk determination.

While many asset-based lenders solely rely on third-party valuations, the old-school approach includes using field exams and verifications, in addition to third-party appraisals, to test the veracity of the receivables. Professionals pick up the phone and call the debtor to ask, “Do you owe this?” They get statement balances and verify whole balances if there are too many invoices for the debtor to go through. At least a statement balance provides a sense if the lender is in the same ballpark as the debtor. Lenders review the cash application and compare the cash receipts journal to the aging. They ask themselves, “Are they applying payments and credits correctly?” Lenders also monitor the origination of electronic transfers and wires to ensure they come from who owes the borrower.

For inventory, field exams should include costing and test counts. Lenders look at slow moving inventory and discuss the inventory appraisal results with the appraiser and compare it to the field exam findings. They visit the inventory locations firsthand. They visit borrowers at least once a year, more often depending on the circumstances, which facilitates a long-term partnership dialogue. As lenders you want to walk through the plant with the owner or managers and see the interaction between the staff and management. These are not diligence items that can be accomplished through a video call.

Relationship Driven: One of the common considerations from advisors and management teams when picking a lender is not who has the absolute lowest rate, but rather, how does the financing partner behave when more flexibility is needed? Great companies can still face liquidity constraints, but old-school ABLs take the long-term view on partnerships with companies. They underwrite the business plans provided and ask, “Does this make sense? Are these assumptions realistic?”

Because ABLs make loans to individual companies that they hold on a balance sheet, rather than packaging loans for distribution, diligence is a crucial step in the old-school process. This effort extends beyond valuing collateral. During diligence, they spend a lot of time getting to know senior management and understanding their business and strategy. ABLs run background checks on owners, essential managers, and all individuals reporting collateral. They don’t just underwrite collateral—they underwrite business plans and management teams, which enables them to structure a loan that meets the business’s needs with the available collateral. If a deal was referred by a consultant or trusted advisor, old-school ABLs consider their view of management as well, asking, “Are they a capable management team?” These are all essential questions in the underwriting process.

Flexible, Customized Structuring: Since the early days of old-school ABL, the financing source has provided more flexibility than both traditional bank credit facilities and broadly syndicated loans because of its hands-on nature. Additionally, in asset-backed finance, there is little, if any, ability to modify loans once they are structured. ABLs’ greater control over collateral, including cash dominion—and their real-time view of the business’s financial health— enables them to structure facilities that other lender types cannot.

For example, an old-school ABL provided a flexible $70 million credit facility, backed by accounts receivable, for a staffing company on both billed and unbilled receivables. The ability to analyze and structure additional liquidity for service companies was valued by this borrower.

In the contemporary version of traditional ABL, the specialty finance strategies across the platform collaborate to deliver a broad suite of financing alternatives for borrowers seeking liquidity solutions through optimizing their assets. The platform has financing products that leverage collateral across accounts receivable (including government receivables in the health care business), inventory, machinery and equipment, real estate, and intellectual property. The ABL provides revolvers, term loans, ABL unitranche loans, FILO term loans, and factoring facilities (both recourse and non-recourse). This expertise spans a broad range, including working capital facilities, growth and acquisition capital, and DIP and exit financings. These teams work together to creatively solve the clients’ liquidity challenges. This breadth of capabilities demonstrates the evolution of private credit, in which some lenders have specialized away from direct cash flow lending.

One old-school ABL recently financed a manufacturer of pet foods that faced challenges due to high capital expenditures related to a new manufacturing facility along with rapid growth. This impacted their near-term cash flow. The ABL’s $75 million first-lien borrowing base credit facility, which was backed by accounts receivable and inventory along with the boot collateral of machinery and equipment, provided the company with flexible growth capital.

Hands-On Monitoring: While technology is facilitating monitoring efforts, having the infrastructure and systems in place for monthly or daily collateral monitoring remains a critical factor in ensuring that loans remain fully recoverable. Judgment and personal knowledge of the borrower’s operations, reporting capabilities, etc. are critical. New AI products can create great efficiencies in parsing data, but if a team doesn’t have experience in what to look for, these tools will not be effective. Equally important in the monitoring process? Account executives partner with the borrowers’ finance team to ensure the facility is running smoothly for them. Additionally, collateral dilution is avoided through more frequent field exams and more frequent monitoring via detailed borrower reporting to detect negative trends. ABLs can often utilize “blocked” or “lockbox” accounts where customer payments are deposited, allowing them to monitor and control cash flow.

The infrastructure that supports these processes is difficult to replicate. While there have been many new entrants to asset-based lending, the pool of traditional, old-school lenders remains fixed because experience cannot be gained overnight or outsourced.

In collateral monitoring, judgment remains a critical component. Unlike cash flow loans, which are monitored in hindsight with metrics like revenue and EBITDA performance, lenders can track accounts receivables and inventory turns, which are windows into the fundamental operating performance of the borrower and sooner. These timelier data points provide greater insight into the borrowers’ liquidity needs. It’s not uncommon to receive requests from borrowers such as, “I am waiting for this group of receivables to turn but I have to meet payroll. Can you over advance for a few days?”

To work with clients, old-school ABL judgment can be applied both ways— to be a good partner to borrowers but also to protecting the principal. Lenders ask themselves, “Can we accommodate the request from a risk/repayment perspective and is it the right risk for the borrower to be taking?” They weigh all the factors because every loan is seen as an investment in a long-term partnership with the business and its management team.

In closing, “old-school ABL” is technically a misnomer for the lending approach given how relevant and modernized the practice has become. In this new private credit landscape, in which the influx of capital has created a commoditization of the product for many large-scale lenders, flexibility—enabled by an experienced lenders’ deep understanding of collateral and resources to monitor collateral in real time—remains a valuable resource for borrowers in need of liquidity. Enhancements through technology and a greater product offering through platform collaboration allow the traditional ABL approach to continue serving middlemarket borrowers through financings that optimize their asset base and complement their business strategy.

 

To view all of the articles in this issue, please visit  turnaround.org/journal-issue/april-2026

To learn more about the Turnaround Management Association (TMA), please visit www.turnaround.org