Asset-based Lending at M&T Bank

Asset-based lending (ABL) at M&T Bank offers companies a flexible financing solution secured primarily by a borrower’s assets — typically accounts receivable, inventory, equipment, and certain other collateral. Designed for businesses that require working capital, seasonal financing, growth capital, or balance sheet restructuring, ABL provides a tailored credit facility that aligns borrowing capacity with the ebb and flow of underlying asset values. This product is particularly well-suited for firms with significant tangible assets but may not qualify for traditional unsecured or cash-flow-only loans.

Key Features

• Collateral-Driven Credit Limits: Borrowing capacity is determined by a percentage of eligible receivables, inventory, and equipment, creating a dynamic line that grows and contracts with the business.
• Revolving or Term Structures: Facilities can be structured as revolving lines of credit for working capital or as term loans for longer-term investments and acquisitions.
• Competitive Pricing: Interest rates and fees are priced based on the risk profile and structure of the facility, with options for fixed or variable spreads over benchmark rates.
• Customized Covenants and Reporting: Covenants, reporting frequency, and eligibility rules are tailored to the business, balancing operational flexibility with prudent risk management.
• Advanced Monitoring: Regular asset reviews, periodic audits, and reporting mechanisms ensure alignment between loan exposure and collateral values.

Benefits for Borrowers

• Improved Liquidity: ABL converts working capital assets into accessible cash, easing cash flow variability tied to sales cycles or growth initiatives.
• Growth Support: Companies can finance inventory build-up for seasonal demand, expand production capacity, or seize acquisition opportunities without diluting ownership.
• Flexibility: Since limits are asset-based, borrowers often gain higher borrowing capacity relative to cash-flow-only lending, especially during growth periods when receivables and inventory increase.
• Relationship Banking: ABL at M&T Bank is implemented within a broader commercial banking relationship, enabling integrated treasury, deposit, and payment services.
• Predictability and Control: Clear advance rates and eligibility criteria provide predictable access to capital and transparent oversight of borrowing availability.

Typical Borrower Profiles

Asset-based lending is commonly used by middle-market companies across manufacturing, distribution, retail, and business services sectors. Typical borrowers include:

• Wholesale distributors with significant inventory and receivables.
• Manufacturers with seasonal production cycles or extended supply chains.
• Retailers and e-commerce businesses managing inventory turnovers.
• Service providers with large invoiced receivables or contract-based billing.
• Companies undergoing restructuring, turnaround, or merger and acquisition activity that require flexible liquidity.

Collateral and Advance Rates

Collateral in ABL typically includes accounts receivable, eligible inventory, equipment, and sometimes real estate or intellectual property. Advance rates vary by asset type and quality:

• Accounts Receivable: Eligible receivables are advanced at a percentage that reflects collectability, concentration, and aging.
• Inventory: Advances on inventory consider sell-through rates, margins, and obsolescence risk, with specific eligibility definitions for raw materials, work-in-process, and finished goods.
• Equipment: Loans or leases secured by machinery and equipment are evaluated on residual values and marketability.
• Other Collateral: Letters of credit, cash sweeps, and guarantees can supplement or support facility structures as needed.

Underwriting and Documentation

Underwriting emphasizes collateral valuation, operational controls, and management capability. Key elements include:

• Detailed collateral schedules and aged receivable reports.
• Inventory reports, valuation methods, and physical inspection results.
• Historical and prospective financial statements to assess cash flow trends and leverage.
• Legal documentation including security agreements, UCC filings (or local equivalents), and perfection steps to secure collateral.
• Operational covenants and reporting requirements tailored to business complexity and risk.

Operational Considerations

Successful ABL programs require robust internal controls and transparent communication with the lender. Typical operational requirements include lockbox arrangements or controlled disbursement accounts, daily or weekly reporting, periodic field exams, and adherence to defined eligibility criteria. These mechanisms help preserve collateral value and provide the lender with timely insight into business trends.

Use of Funds

Asset-based facilities can be used for a broad range of corporate purposes, including funding working capital needs, financing seasonal inventory builds, supporting capital expenditures, facilitating acquisitions, and refinancing existing debt. The facility structure is designed to allow borrowers to draw and repay in accordance with business cycles, providing efficient short-term liquidity while maintaining access to longer-term capital when required.

Risk Management

From the lender’s perspective, risk management centers on maintaining control over collateral and monitoring its quality. This involves establishing clear eligibility rules, maintaining frequent reporting, conducting periodic audits or appraisals, and implementing covenant tests that trigger remediation if asset values deteriorate or borrower performance weakens. For borrowers, maintaining accurate records and strong operational controls reduces the likelihood of covenant breaches and maximizes available borrowing capacity.

How to Evaluate ABL for Your Business

When considering asset-based lending, businesses should evaluate their asset mix, seasonality, and projected growth. Key questions include:

• Do receivables and inventory represent a predictable and material source of collateral value?
• Can operational reporting and controls be implemented to satisfy lender requirements?
• Will an ABL facility provide superior liquidity or lower overall cost compared with alternative financing?
• Is management prepared for the transparency and discipline that ABL reporting entails?

Conclusion

Asset-based lending is a powerful financing tool for companies with substantial tangible assets that need working capital flexibility and growth capital. M&T Bank’s approach to ABL emphasizes customized structuring, collaborative underwriting, and active portfolio management to align financing with business realities. By linking borrowing capacity directly to asset values, ABL helps businesses convert working assets into reliable liquidity, supporting operational needs and strategic initiatives while providing a disciplined framework for both lender and borrower.