Debt funding update 2026

Stuart Bates explores the latest developments in asset-based lending

In recent years, many businesses have used debt funding to focus on resilience in the face of uncertainty, preserving cash, tightening working capital and keeping lender relationships steady.

This is changing. As trading patterns have become clearer and lenders have started to show greater appetite, debt is increasingly back on the agenda as a way for management teams to support growth plans, not just manage pressure.

ABL in a strong place

The mid-market asset-based lending (ABL) landscape is holding more opportunities for borrowers. Over the past two to three years, lenders have broadened their offering and become more confident in supporting mid-market sponsors, entrepreneurs and owner-managed businesses. For borrowers, that means a better chance of finding a facility that fits how the business actually trades, and one that can flex as working-capital needs change.

Naturally, ABL remains a particularly good fit for asset-rich businesses where collateral can support a borrowing base. As such, appetite amongst funders is consistently strong across manufacturing and engineering-led sectors such as automotive, aerospace, food & beverage, wholesale, import and logistics and warehousing. Lenders are typically more cautious towards some service style businesses, and particularly consumer-facing sectors, where margin pressure and forecasting assumptions are harder to evidence. This include retail, hospitality and leisure, which are more sensitive to changes in consumer demand and costs.

But, across the market, pricing has become more competitive, with a smaller gap between standard ABL and more flexible options such as revolving credit facilities. We are also seeing more “blended” facilities, where lenders will add a cash flow element alongside an asset-backed facility. This can provide extra headroom without moving to a fully cash flow-based structure.

Alongside traditional ABL, borrowing-base revolving facilities are becoming more common. These typically reset availability on a regular basis, often monthly. For the right business, this type of facility can match the working-capital cycle well, but it won’t suit everyone. Lenders will still look closely at asset cover, reporting and the security package, and the right structure depends on how quickly the business turns stock and invoices into cash.

What to expect next

For businesses that fit the ABL model, funding is increasingly being used to support wider strategic plans, not just day-to-day working capital. That shift is already feeding into M&A.

There’s growing momentum in dealmaking, with many companies that were approaching an exit cycle a couple of years ago delaying decisions while conditions were less predictable. Now, more owners are revisiting those plans, whether that is a full sale, a partial de-risking event or bringing in a partner to support the next phase.

Carve-outs, in particular, could be a significant source of activity, and something that drives demand for ABL facilities. Corporates continue to reassess what constitutes a ‘core offering’, and we expect to see more of this through 2026, alongside continued consolidation in established sectors like manufacturing and logistics.

Generally, any further interest rate cuts this year could increase appetite for debt funding. However, lending also depends on confidence and general stability. This helps firms forecast with more clarity, and lenders assess performance more accurately, which is ultimately what they’re looking for.

Whatever happens with market and economic conditions, good planning will remain key for any business seeking debt funding.

In my experience, management teams often underestimate the time that you might need to invest to talk to prospective lenders to make them comfortable to deliver the end product – something that a busy entrepreneur or CEO   might simply not be able to spare on top of running their business.  Crucially, it’s important to get it right first time –there’s often only one chance to make a good impression.

This is just one reason why external debt advisory support will continue to be valuable for those seeking to secure new funding this year. A good adviser can manage the process end-to-end and critically bring their experience to bear to make sure that a business is presenting itself, and its growth, in the best light, right from the start.

For more information on how we can support you in navigating the ABL market, contact Stuart Bates