Raising Working Capital in a Recession with Asset-Based Financing

You need working capital to weather the disruption, but like many businesses, your financials may not qualify for a new commercial bank loan. Even if you already have one, stressed earnings can trigger loan covenant violations and force your bank to call your loan on short notice, leaving you scrambling for an alternative.

Here’s the good news: even if you’re temporarily cash-poor, if your business owns machinery, equipment, inventory, accounts receivable, or real estate, asset-based financing (ABF) provides an effective, flexible funding solution. According to data from the Secured Finance Network, asset-based loan commitments actually rose by 3.4% in 2023, with non-bank lenders seeing even more robust growth, evidence that ABF remains resilient amid economic fluctuations (ELFA Online).

Below, we outline why asset-based lending can be a critical lifeline, especially when economic conditions are tough.

What is Asset-Based Financing?

Asset-based financing allows you to leverage the value of your business’s assets, like accounts receivable, machinery, inventory, or owner-occupied real estate, as collateral, rather than relying solely on cash flow to obtain capital.

You’ll find asset-based financing is typically more flexible than traditional cash-flow loans, featuring fewer covenants and often allowing for larger borrowing amounts. The review and funding process is generally faster as well. It’s important to note that ongoing reporting is essential; periodic asset reports keep everyone confident that collateral value is maintained, one of the key differences from cash flow loans.

Asset-based lending is especially valuable for small- and mid-sized businesses with meaningful collateral. This structure also empowers manufacturing, distribution, and inventory-heavy companies to bridge seasonal cash gaps, support expansions, or optimize operational funding. Recent industry analysis projects that the global asset-based lending market will reach $1,423.83 billion by 2029, reflecting a robust compound annual growth rate of over 12%, a sign of the increasing reliance on these solutions during periods of uncertainty (Whatech).

Learn more about the various asset-based lending options available for your business.

Why an Asset-Based Loan Makes Sense When Raising Working Capital in a Recession

Here are five key reasons why asset-based financing can be your company’s best option during a recessionary period:

1. Faster Approval and Funding

Asset-based loans generally have much faster approval times compared to traditional cash-flow loans. The underwriting process is less complex, which means you can get the capital your business needs quickly.

With economic conditions often causing uncertainty, ABF offers stability: lending parameters are linked to asset value rather than volatile market factors. As long as your assets carry a stable value and are easily convertible, you can move forward with confidence.

While commercial bank loans depend heavily on metrics like debt divided by EBITDA, EBITDA margin, and operating cash flow, most asset-based facilities waive those rigid requirements. Instead, you only need qualifying business assets with a positive market value and manageable depreciation.

Get clarity on loan assessment and approval processes.

2. Flexibility in Credit Usage

Asset-based loans impose fewer restrictions on the use of funds, which proves critical in a recession. You decide how to allocate capital, cover payroll, purchase inventory, or support vital growth initiatives.

Unlike traditional loan agreements with strict leverage and cash flow covenants, asset-based loans are typically more forgiving and remain accessible, even when liquidity is tight. This flexibility provides relief when revenues dip and operational resilience is mandatory.

In fact, the Secured Finance Network reported that the asset-based lending industry performed well in the fourth quarter of 2023, highlighting its function as a dependable capital source when the broader market is volatile (ABF Journal/SFNet).

3. Access to More Capital

Asset-based loans often support a higher debt capacity than pure cash-flow options. Even if you meet criteria for a cash-flow loan, the amount available is frequently less than what your assets can secure in an ABF structure.

Since cash-flow loans depend on operational earnings, they often shrink during recessions. Meanwhile, the borrowing base in asset-based lending is determined by collateral value, so if your inventory or receivables grow, your credit line can adjust upward.

The Asset-Based Lending Global Market Report 2024 highlights that the market is on pace to reach nearly $1.3 trillion by 2028, fueled in part by demand for non-traditional lending as companies seek higher capital efficiency.

Take advantage of Cerebro Capital’s Debt Capacity Calculator to estimate your borrowing power today.

4. Put Idle Assets to Work

Economic downturns might leave equipment idle or inventory levels high, but those assets can be immediately put to work as collateral for a revolving line of credit or structured loan. Asset-based financing transforms unused capacity into liquidity, helping your business remain agile and well-capitalized.

Explore additional options such as equipment and machinery financing.

5. Beneficial for Lenders

Lenders are also cautious during recessions. Asset-based loans reduce their risk exposure because their security is tied to tangible assets, not uncertain future cash flows. These structures often require ongoing collateral monitoring, protecting both your business and your lender’s interests, while ensuring that capital continues to flow through challenging cycles.

Industry sources note that despite fewer new clients in 2023, deal sizes in asset-based lending grew, a testament to the adaptability and appeal of this funding method during volatile periods (ABF Journal).

Asset-Backed Loans: A Win During Economic Downturns

Remember that CEO searching for working capital but blocked by rigid lending requirements? Asset-based financing can offer the strategic advantage they need.

ABL is not just a useful option during downturns, it is also a strategic tool for funding expansion, smoothing seasonal cycles, and fueling innovation when others may be pulling back. By leveraging business assets, you tap into a funding channel that is reliable and scalable.

Cerebro Capital helps democratize access to asset-based and working capital financing for mid-sized companies. Our lender network, with more than 2,200 institutions, supports borrowers with tailor-fit loans, up to $100 million.

If you’re ready, find your ideal lender matches with Cerebro Capital. The process is quick, transparent, and shaped by market data.

Frequently Asked Questions About Asset-Based Lending