Equipment companies turn to ABL as markets stay tight
ABL non-bank lender confidence up 10.8 points QoQ
Amid tariff uncertainty and volatile asset values, businesses are increasingly turning to asset-based lending for flexibility and liquidity as confidence in the sector grows.
With businesses assessing how tariffs affect margins and cash flow, lenders must focus on earnings and asset strength, especially for manufacturing and inventory-heavy firms, Mike Semanco, president and chief operating officer of the business finance division at Mitsubishi HC Capital America, told Equipment Finance News.
“We’re going to look at those underlying asset values of receivables, inventory and equipment,” he said. “Because we look at the asset value, we have a tendency to leverage those up higher than a traditional cash flow lender would.”
For asset-based lending (ABL), lenders rely on upfront appraisals and asset values rather than cash flow covenants, while working closely with clients to manage tariff-driven volatility and preserve flexibility, Semanco added.
Confidence rebounds
Confidence in the U.S. ABL market rebounded in the second quarter as both bank and non-bank lenders reported stronger activity following a turbulent start to the year, according to the Secured Finance Network (SFNet).
SFNet’s Q2 2025 Asset-Based Lending Index showed bank lenders’ confidence rising 7.4 points to 56.5, while non-bank lenders climbed 10.8 points to 63.3, entering positive territory, according to a Sept. 22 SFNet release.
In addition, lending commitments increased 1.1% for banks and 5.2% for non-banks, while new outstandings also surged 6.5% for banks and 47.4% for non-banks.
Tariff impact on ABL, ABS
With tariffs causing market volatility and uncertainty, ABL provides liquidity in the face of changing inventory and equipment values, supplementing cash flow beyond traditional lending, Semanco said.
“It’s been an interesting time for both the borrower and for us as a lender, because we are seeing more opportunities, but we’re looking at the company to really see how well they’ve gone into their business and determine what the tariff impact is going to be,” he said.
ABL “gives [companies] the flexibility they didn’t understand on the front end, and it also provides some internal forecasting discipline with regards to tariffs or cash flow regarding COVID shutdowns or supply chain issues.” — Mike Semanco, president and chief operating officer of the business finance division at Mitsubishi HC Capital America
Tariff increases have not yet had a major direct impact on the asset-based lending or asset-backed securities market, but uncertainty is complicating long-term business planning, Van Hesser, senior managing director and chief strategist at ratings agency Kroll Bond Rating Agency (KBRA), said during a Sept. 24 joint webinar with the Equipment Leasing and Finance Association.
Companies are expected to feel the tariff effects starting in Q4 and into early 2026 as lagging impacts from shipping, intermediate goods, and dwindling inventory stockpiles begin to surface.
“Business managers are clearly looking for clarity around what still is a fairly fluid policy,” Van Hesser said.
Register here for the free Equipment Finance News webinar “High-priced used equipment inventory: The no-man’s land of equipment finance” set for Tuesday, Oct. 21, at 11 a.m. ET.
