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 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 for your business.

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What is Asset-Based Lending (ABL)?

Asset-Based Lending (ABL) is a financing option that allows you to use your business assets—such as inventory and accounts receivable—as collateral to unlock the capital you need for growth. For instance, if your business is holding onto large amounts of inventory or has unpaid invoices from customers, ABL lets you access funds that might otherwise be tied up. This can be especially helpful for businesses with steady revenue, 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 can be particularly valuable if your customers pay on extended terms or if you experience slow-paying accounts.
• Inventory: Your stock—or finished goods (but also in some cases raw and work-in-progress materials)—can also serve as collateral. If you carry substantial inventory, ABL provides the opportunity to tap into those assets to fund your operations and expansion.

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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.
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 strong 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 65% 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 typically offers a revolving line of credit, which provides flexibility. As your inventory and receivables grow, so too will your borrowing capacity. This allows you to access the working capital you need at any given time, whether to replenish inventory, cover operational costs, or invest in growth initiatives.

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3. Interest Rates and Fees

Interest rates for ABL are typically higher than traditional loans, as your assets secure the lending. However, ABL rates are generally lower than those for unsecured loans or credit cards. Be sure to understand the rates and any additional fees before committing to the loan.

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4. Repayment Flexibility

With ABL, repayments are typically tied to your cash flow. As you collect on receivables or sell inventory, you repay the line of credit, freeing up room for additional borrowing as needed.

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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. 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.

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Conclusion

If you're an emerging consumer product business with strong inventory and accounts receivable, asset-based lending can help optimize cash flow and fuel your growth. It offers flexible, fast access to capital, enabling you to manage day-to-day operations, expand inventory, or 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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