The changing face of asset-based lending in debt advisory

Scott Ellis outlines how greater flexibility and competition are reshaping the UK debt market.

So far in 2026, the debt market has been characterised by strong liquidity and lender competition, as well as a growing selectivity as refinancing pressures and economic uncertainty shape funding decisions.

Today, even while the market continues to evolve, many of those dynamics remain. Competition is encouraging lenders to explore more flexible structures, while businesses are reassessing funding arrangements against a backdrop of geopolitical uncertainty, ongoing cost pressures and an upcoming Budget.

One of the most important developments is the changing role of asset-based lending (“ABL”). Once associated primarily with working capital and more challenged situations, it is increasingly being used as a strategic funding option, widening the choices available to businesses.

A broader application for ABL
Historically, ABL has been primarily concentrated in sectors such as manufacturing and distribution, where funding could be advanced against a clear trail of receivables.

This remains an important part of those markets, although the appeal of ABL has also widened considerably. Lenders are increasingly willing to fund across assets including property, plant and machinery, inventory and intellectual property, with ABL also becoming more established in fast-growth and service-led sectors.

Competition has been central to that evolution. Rather than taking a binary approach to asset or cash-flow lending, more tailored structures are emerging that draw on the unique characteristics of a business.

For example, hybrid facilities can combine lending against underlying assets with additional leverage based on profitability and trading performance. Other approaches include seasonal over-advances and structures that allow certain assets to be regularly revalued, helping businesses to preserve liquidity, in favour of making regular capital repayments.

This flexibility is broadening the role ABL can play. For corporates and private equity investors, it can increasingly support strategic events including growth, acquisitions, carve-outs and management buyouts, rather than simply addressing short-term working capital requirements.

Now is the time to review funding arrangements
This widening range of debt funding options comes as more businesses are reconsidering their existing facilities.

Much of the COVID-related debt accumulated by UK businesses has now either been repaid or reduced substantially. This is giving management teams an opportunity to reassess whether their existing funding structures remain appropriate.

The trigger will differ from firm to firm. Some facilities will simply be approaching renewal, while some companies may have outgrown their existing arrangements or find that a lender’s credit appetite no longer aligns with their plans.

But timing is important. Our Decision Economy research found that 70% of mid-market businesses experience frequent delays to major decisions, with firms taking an average of 4.7 weeks to reach significant decisions.

When applied to refinancing, delays can have tangible consequences. Starting the process too late can narrow the pool of lenders that can realistically be approached, reducing competitive tension and increasing execution risk.

Earlier preparation also creates more time for scenario analysis, an area that lenders scrutinise very closely. Rather than simply modelling a fall in sales or supply-chain disruption, businesses need to understand how different scenarios would flow through working capital, cash and their overall funding requirement.

That applies to positive scenarios too. As Restructuring Advisory Partner, Allan Kelly explored in his recent thought piece, Why the strongest recovery can create the biggest cash squeeze, periods of rapid growth can place unexpected pressure on working capital as businesses invest in inventory, fulfil larger order books and support longer cash conversion cycles. Ensuring facilities provide sufficient headroom to accommodate that growth is therefore just as important as planning for downside scenarios.

Keeping options open
The upcoming Budget creates another period of uncertainty, but this is not expected to materially delay mid-market businesses looking to refinance or raise debt. Potential measures to increase borrowing capacity would be encouraging. Alternative funding routes have increased in popularity over the past 12 months as lenders and borrowers seek additional ways to support growth.

For larger mid-market corporates, attention is likely to remain on business rates, operating costs and consumer spending power. Where these pressures lead business models or funding requirements to change, alternative structures such as ABL may become increasingly relevant if conventional cash-flow lending is more challenging to secure.

Capital remains widely available, but the routes to accessing it are becoming more varied. As lenders innovate and ABL continues to broaden in appeal, business leaders have an opportunity to look beyond how they have historically financed their operations.

Those that start the conversation early will be best placed not simply to refinance, but to find a funding structure that supports what comes next.

To find out more about how FRP’s Debt Advisory team supports businesses, shareholders and sponsors with refinancing, growth funding and strategic financing solutions, contact Scott Ellis or one of our other Debt Advisory experts.