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Observations of an ABL Auditor, July 2009

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One of the few areas of commercial lending that has managed to generate growth over the past 12 months is Asset Based Lending (ABL). During the recent economic downturn, banks scrambled to tighten their lending policies and started to review their loan portfolios. The resultant contraction in the number of outstanding lines of credit and the loss of liquidity helped to deepen the crisis. The only bright spot in this dreary landscape was the ongoing success of the ABL sector. The table below shows the growth trend in ABL volumes to the end of 2008. Data for the first quarter of 2009 indicates this pattern remains intact.

Last Updated on Tuesday, 01 September 2009 17:00

Discussion of Selected ABL Lending Policies, July 2009

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Insured A/R

In the past, insured A/R was normally only obtained for foreign accounts (located outside North America) via government sponsored programs such as EDC.  In the last few years, more and more Canadian and US A/R accounts are being insured through private insurance providers. A current practice in the ABL industry is to provide a 90% advance rate on domestically insured A/R accounts where overall dilution is less than 5%.  In other words, if an account qualifies for an 85% advance rate without A/R insurance, then the account would qualify for a 90% advance rate with credit insurance.  The justification for the increase in A/R advance rates is that the risk associated with the A/R collateral assigned to the bank is mitigated, to some extent, by the A/R insurance.  For foreign accounts, the A/R account would only be eligible if insurance was in place; the advance rate would be 85% assuming dilution of less than 5%.

Last Updated on Tuesday, 01 September 2009 17:02


What is asset based lending?

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