FRP’s Alex-Hilton-Baird and Luke Wilson share their observations on recent trends in the ABL market
FRP’s Alex-Hilton-Baird and Luke Wilson share their observations on recent trends in the ABL market
Asset-based lending (ABL) is changing, driven by economic headwinds and intensified competition. Here, FRP Partners Alex Hilton-Baird and Luke Wilson share observations on themes they’ve seen over the first half of 2025 in the ABL market – and look ahead to what might come next.
Q: What are the key shifts you’ve seen in the ABL market so far this year?
Alex Hilton-Baird (AHB): “ABL is becoming increasingly competitive, particularly in the mid-market – the £5 million – £50 million territory.
“Weak economic conditions mean corporates have less appetite for borrowing, and private equity is struggling to complete many transactions – lots of capital is now chasing a small number of deals. Meanwhile, in the SME space, the continued rise of fintech innovators is also pushing some lenders further up the ticket, forcing them to compete for the fewer, but often more complex, opportunities.”
Luke Wilson (LW): “Through our Debt Advisory and Restructuring Advisory teams, we are also seeing private credit funds more frequently dropping down into the ABL space, or at least increasingly using ABL borrowing principles to structure deals. They’re filling gaps in terms of speed and flexibility that ‘traditional’ ABL lenders are leaving open because they are burdened with longer timelines for risk and compliance.
“While private credit is never going to replace ABL, there’s fierce competition between the sides to secure bigger slices of the lending ‘pie’.
“Each has specific strengths that they play to. ABL generally has the advantage on price over private credit, and lenders deliver more tailored financing packages to meet very specific needs. Meanwhile, private credit offers ‘looser’ base borrowing structures, covenants and greater leverage on non-asset based cashflow lending. As they continue to compete, we expect to see more ABL lenders move towards private credit’s base structures – provided they can accommodate the higher risk profile that this brings.”
Q: How is ABL being used in M&A deals?
AHB: “Over the past decade, PE-led M&A activity has been the biggest growth area for mid-market ABL lenders. Although this market has slowed in the last 18 months, the PE firms that we work with are telling us that they see ABL as an increasingly attractive element in the transactions that are going ahead. In an uncertain economy, leveraging assets, rather than more volatile cashflows, allows them to buy efficiently with lower equity cushions.
“A difficult environment is also creating new opportunities. Because PE firms are having to hold on to assets beyond their preferred periods, they’re turning to ABL as an effective financial tool to recycle capital, without having to exit.”
LW: “Our Corporate Finance and Debt Advisory teams are also seeing PE firms continue to explore the use of ABL structures in M&A processes to optimise pricing or better fund working capital, where the balance sheets allow. Here, we’re seeing a shift away from typical invoice finance deals towards multi-asset ABL facilities or combined ABL and cashflow lends.
“This, again, reflects the economic environment. Challenging trading conditions are making it harder for traditional lenders to get involved in deals, and ABL is stepping in.”
Q: How do you expect to see the market evolve, and what will lenders need to consider?
AHB: “As deal volumes remain inconsistent and risk appetites vary, ABL will remain a vital tool in enabling both borrowers and lenders to unlock value. Lenders who can respond creatively and advisers who can support that agility will shape the next phase of growth in the mid-market.
“Given that PE firms have become more familiar with how ABL can support the full breadth of their investment lifecycle, we see a real opportunity for lenders to forge new or deeper relationships with PE houses. The lenders that will stand out will be those that can operate consistently at ‘PE pace’ – combining their deep sector experience and adaptability to deliver lending decisions quickly.
“We also see opportunity for ABL lenders to build on what have already been very successful collaborations with private credit funds. These have typically involved using ABL to bring down the overall cost of a facility on a blended basis through a super senior tranche, with private credit taking more risk and return beyond the ‘secured’ ABL borrowing base.”
LW: “It will remain imperative that lenders invest in protecting themselves, given what is expected to continue to be a high-risk lending environment.
“This means conducting in-depth pre-lend reviews, and including exit planning as part of the due diligence process so that they have clear routes to recovery should the worst happen. While it’s never something that lenders expect to happen, our experience shows time and time again that early, proactive, planning always leads to better outcomes than attempting to respond once cracks have already appeared.”
To read more of FRP’s insights into the ABL landscape, click here.