A Guide to Asset-Based Lending in Commercial Real Estate

David Cohn
Mar 19, 2024
Asset-Based Lending

Key takeaway:

Asset-based lending (ABL) plays a crucial role in financing within the commercial real estate sector by offering flexibility, focusing on asset value rather than credit history, and enhancing liquidity. As the market continues its growth trajectory, harnessing ABL could prove instrumental for CRE investors in 2024and beyond. ABL can be a valuable tool for those who seek faster access to capital, increased flexibility in loan structure, and financing opportunities even with limited credit history or lower cash flow from the property.

The global asset-based lending (ABL) market achieved a valuation of USD625.35 billion in 2023 and is expected to reach USD 1324.75 billion by 2024, with forecasts predicting a compound annual growth rate of 11.32%. What’s propelling this trajectory? Private lending.  

Now dominated by non-bank lenders, the ABL segment is increasingly becoming a preferred financing mechanism in commercial real estate (CRE).Rising interest rates, increased capital requirements, and primary credit concerns have redirected lending from traditional banks to alternative capital sources. 

Are you interested in using ABL for your next CRE investment? In this blog, we explore everything you need to know about asset-based lending for commercial properties —defining it, highlighting its advantages, and outlining how to obtain asset-based loans for CRE ventures. 

What is asset-based lending? 

Asset-based lending is a financing method where a loan is granted based primarily on the value of a borrower's assets rather than relying solely on their creditworthiness or cash flow. These assets serve as collateral. So if the borrower defaults on the loan, the lender can seize and sell the assets to recoup their losses.

ABL is commonly used by businesses of all sizes across various industries. Assets can include various types such as:

  • Real estate - Land and buildings owned by the business
  • Accounts receivable - Outstanding invoices owed to the business by customers for goods or Machinery and equipment- Physical assets used by a business to operate and produce goods or services.
  • services already delivered
  • Inventory - Raw materials, finished goods, and work-in-progress items held by a business
  • Marketable securities - Stocks, bonds, and other financial instruments that can be easily sold to generate cash

What is asset-based lending in commercial real estate?

Asset-based lending is a CRE financing strategy that allows investor-borrowers to secure loans using their commercial real estate assets as collateral.  

By focusing on the intrinsic value of commercial property assets, this approach deviates from traditional lending, which prioritizes credit history and financial statements.  

Asset-based lenders do not look at the borrower’s personal financial health. Instead, they assess the asset’s liquidation value to ensure that they can reclaim the loan amount if the borrower defaults.  

ABL offers a viable financing alternative for those with imperfect credit histories by leveraging property values. 

From the point of view of lenders, it also carries less risk than unsecured lending because the loan is secured by an asset. This typically leads to lower interest rates, which benefits the borrower. 


How does asset-based lending work in commercial real estate?

ABL lenders in the CRE space evaluate the property's potential by analyzing several factors. The lender commissions an appraisal to determine the property's fair market value. This value serves as the baseline for determining the loan amount. 

Aside from the property’s value, a lender may also look at the property’s cash flow — that is, the property’s expected rental income against expenses such as maintenance, insurance, and taxes.  

They may analyze historical and projected income and expenses to assess the property's financial stability and potential for future growth.  

While cash flow is not the primary focus, ABL lenders still consider it during the underwriting process.  

The borrower's experience and track record in managing commercial real estate may also be taken into account, as it reflects their capacity to manage the property and generate sustainable revenue. 

All these factors together determine the maximum loan amount. Similar to traditional loans, ABL uses the loan-to-value (LTV) ratio that represents the percentage of the property's value that the lender is willing to lend.  

ABL in CRE often allows for higher LTV ratios compared to traditional loans. This means borrowers can potentially secure a larger loan amount even if the property's cash flow is not as strong. 

ABL loans in CRE can be structured with different terms and conditions depending on the borrower's needs and the lender's assessment.  

Loan durations usually extend from one to five years, allowing borrowers sufficient time to increase the property's value or arrange for conventional refinancing. 


What are the benefits of asset-based lending in CRE?

Traditional loan options often limit borrowing based on the property's cash flow. ABL breaks free from this constraint, allowing CRE investors to spread their cash flow across multiple properties and potentially secure higher loan proceeds.

Beyond this core benefit, ABL offers several advantages in the CRE space:

  • Flexibility – Asset-based financing solutions can be tailored to fit the borrower's asset base and financial requirements, offering a significant edge over more stringent traditional lending options. For example, asset-based loans can be structured with variable interest rates or interest-only payments during the initial stages of a project, allowing for greater financial flexibility during the construction or development phase.
  •  Liquidity – ABL ensures immediate cash flow, which is often essential for covering operational costs or exploiting growth opportunities. For instance, ABL can be used to bridge the gap between closing a sale and receiving the full purchase price to allow the borrower to access capital quickly and seize new investment opportunities.
  • Focus on property value, not personal finances - Unlike traditional loans that heavily depend on personal or business creditworthiness, ABL primarily focuses on the collateral's value (the commercial property) and the borrower's investment plan for increasing revenue. It therefore facilitates easier access to financing for businesses and CRE investors with solid asset portfolios but subpar credit ratings. This can be particularly beneficial for start-up companies or those experiencing temporary financial difficulties, as they can still secure financing based on the value of their existing assets.
  • Potentially lower interest rates -Since the loan is secured by collateral, lenders may offer lower interest rates compared to unsecured loans.
  • Reduced down payment requirement -Compared to traditional loans, ABL often requires a lower down payment (as little as 20% in some cases).
  • Simplified application process -ABL typically involves less paperwork and documentation compared to conventional loans, streamlining the application process.
  • Faster processing, closing, and turnaround - ABL loans typically close much quicker than traditional mortgages due to less stringent underwriting standards. This allows for faster decision-making and facilitates efficient capital acquisition.

How does ABL support cash flow for CRE investors?

ABL provides real estate investors with a flexible, reliable, and quick source of funding that boosts their cash flow and supports business growth in various ways:

  • Unlimited use of funds -Unlike traditional loans that often restrict how funds can be used, ABL allows investors to allocate the capital as they see fit, offering greater financial freedom.
  • Unlocking additional capital -ABL also allows investors to leverage their existing properties to generate additional funds. This can improve cash flow and provide a dependable source of revenue.
  • Immediate access to flexible financing - ABL offers quick access to capital, allowing investors to seize new opportunities and effectively manage cash flow fluctuations

What types of commercial real estate properties are eligible for ABL?

A wide range of commercial real estate properties are eligible for ABL financing, including:

  • Industrial properties –Warehouses, distribution centers, factories, cold storage buildings, and other properties designed to house industrial operations for businesses, including manufacturing, production, distribution, and research and development
  • Hospitality properties -Luxury resorts, full-service hotels, boutique hotels, budget motels, and other establishments offering lodging, meals, and other services for travelers and tourists.
  • Multi-family residential buildings- Apartment complexes, high-rise apartment buildings,  condominiums, and other residential buildings are designed to house multiple families in separate housing units
  • Office buildings - Single-tenant office spaces, co-working spaces, large corporate headquarters, and other spaces used for business activities, professional services, and administrative work
  • Retail centers –  Strip malls, shopping malls, lifestyle centers, and other properties that accommodate a mix of retailers providing goods and services directly to consumers, often featuring a combination of anchor tenants (such as large department stores) complemented by smaller specialty stores, restaurants, and entertainment venues
  • Self-storage facilities- Traditional self-storage units, climate-controlled units, specialized storage for vehicles or wine, and other commercial properties that cater to the growing demand for extra space to store personal or business belongings, equipment, or inventory
  • Senior living facilities -Retirement communities, nursing homes, memory care centers, continuing care retirement communities, and other facilities that provide housing, healthcare, and support services tailored to the needs of older adults

Each of these commercial real estate property types presents unique opportunities and considerations for ABL financing. Eligibility requirements can vary depending on the specific lender and their individual underwriting criteria.


What are the requirements for obtaining ABL for commercial real estate?

Many CRE investors appreciate ABL’s straightforward approach, which contrasts sharply with the complexities of traditional financing.

ABL zooms in on the asset itself and your management strategies as the borrower — unlike conventional loans that demand extensive personal financial disclosures.

This focus speeds up the lending process and lets lenders make quick decisions and disburse funds often within one to two weeks.

Still, securing an asset-based loan necessitates meeting certain criteria. Providing detailed property documentation and a clear management and growth strategy is the best way to access this type of financing solution.

Here are some documents to prepare as well as tips on successfully securing your loan:


1. Support your application with the right information.

With ABL, your property's potential is more important than your personal financial history. Prepare to show lenders the following information:

  • Your investment goal
  • Your anticipated return on investment
  • The property's current and projected value post-repairs
  • Your exit strategy

While a detailed presentation of your plans and financials can boost a lender's confidence, what you really need to demonstrate is a comprehensive understanding of your asset's value.

It’s a good idea to prepare a well-researched market analysis and competitive positioning to show lenders how your property stands out in its market.


2. Gather essential documentation and financials.

Lenders will evaluate your investment objectives, expected profits, and exit strategy to determine your loan amount and terms. Your property's value will be of more interest than your personal credit score, so focus on:

  • Obtaining an appraisal to establish the property's market value
  • Providing proof of regular maintenance and insurance on the property
  • Verifying ownership of the property and disclosing any existing debts or liabilities 

Compile a thorough plan that demonstrates profitable property management to streamline your loan approval.

 3. Prepare your down payment.

Be ready to show that you can afford the down payment. This demonstrates your commitment to the project. Providing evidence of liquid assets or a stable income source further is a great way to reassure lenders of your financial reliability and dedication to the investment.

By focusing on these areas, you can position yourself as a strong candidate for ABL and leverage your real estate assets for flexible and quick financing. This preparation not only makes the lending process smoother but also boosts your ability to chase CRE opportunities quickly and confidently.


Should you use ABL?

The answer depends on your specific financial situation and investment strategy. Asset-based lending is one of the most flexible financing strategies in the CRE finance landscape for its efficiency and accessibility. It focuses on the property’s value rather than the personal financial standing of the investor-borrower.

Whether ABL suits your needs depends on your individual goals and circumstances, but its benefits make it a compelling option. If you're looking for quick funding, have a solid plan for your property, and prefer not to rely on traditional loans, ABL could be the right choice for you.


Explore asset-based CRE lending solutions with Capital Investors Direct

Do you need a flexible financing solution for your commercial real estate investments? Capital Investors Direct is here to become your trusted partner. We can provide access to asset-based lending tailored to your property ventures. 

Our team — consisting of expert underwriters, loan specialists, and advisors — can offer quick and efficient asset-based financing utilizing the latest CRE technology. We facilitate financing in as fast as 10 days and support all types of commercial real estate loans. 

Features of our asset-based lending solutions: 

  • LTV Ratio of up to 75%
  • Loans from $1M to $5M
  • Suitable for borrowers with bad credit
  • Same-day underwriting
  • Quick closing

More than just a financial source, we offer guidance and support every step of the way to help your project succeed. After all, we have been in your shoes and understand the challenges of being a CRE investor. 

We're eager to learn about your investment goals. Fill out our application and allow us to put together the perfect loan for your next project.


Why choose asset-based lending with Capital Investors Direct?

When you work with our team, you can expect:

  • Tailored financing solutions - We design bespoke ABL solutions that align with your goals. We understand that each commercial real estate project is unique, so our experts dedicate time to grasp your specific needs and investment objectives.
  • Competitive interest rates - Our goal is to offer you cost-effective solutions to maximize your investment returns. We prioritize your profitability by securing competitive interest rates for your ABL.
  • Flexible loan terms - With a vast network of lenders, we provide a variety of loan terms — from short-term commercial bridge loans to long-term financing options — to match your financial strategy.
  • Expedited funding process -Recognizing the importance of timing in CRE deals, we’ve made our application process quick and straightforward. This way, you can access funding fast and confidently capture time-sensitive opportunities.

How to get started

Capital Investors Direct simplifies the ABL process for you. Here's how to begin:

  • Initial consultation - Contact us for an initial discussion. We'll listen to your needs, evaluate your assets,and understand your investment vision.
  • Asset valuation - Our experts will thoroughly assess your commercial properties to establish their market value. This step is crucial as we design your lending solution.
  • Tailored ABL solution - Following the evaluation, we'll offer personalized ABL options that fit your needs. We’ll be sure to discuss terms, rates, and repayment plans with you to help you make fully informed decisions. 
  • Application and funding – Once you’ve decided on an ABL solution, we’ll guide you through the application process. You can count on us to use our lender relationships to speed up approval and access to funds.

Take full advantage of the power of asset-based lending with Capital Investors Direct

With ABL solutions tailored to meet your needs and expert advice at every turn, Capital Investors Direct can help you take your projects to greater heights. Unlock the full potential of your properties with our asset-based lending strategies. Reach out to our team today.