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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.
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:
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.
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:
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:
A wide range of commercial real estate properties are eligible for ABL financing, including:
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.
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:
With ABL, your property's potential is more important than your personal financial history. Prepare to show lenders the following information:
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.
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:
Compile a thorough plan that demonstrates profitable property management to streamline your loan approval.
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.
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.
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:
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.
When you work with our team, you can expect:
Capital Investors Direct simplifies the ABL process for you. Here's how to begin:
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.
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