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Asset-based lending (ABL) has gained significant traction in recent years, not just among borrowers, but more importantly among lenders looking to adapt to a more uncertain and competitive credit environment. While direct lending once dominated the private credit space due to its simplicity and yield, many lenders are now leaning into ABL for its risk mitigation, structural advantages, and alignment with modern portfolio management practices. This shift is reshaping how lenders approach credit deployment, particularly in middle-market and lower-middle-market segments. In this blog, we examine the top reasons that lenders are shifting from direct lending to asset-based lending. Plus, we explore some of the ABL-specific features in AXIS by AIO Logic that allow lenders to automate and optimize their ABL operations!

1. Lower Credit Risk Through Collateralization

Lenders are increasingly drawn to ABL because it reduces credit risk by relying on liquid, verifiable collateral such as receivables, inventory, or equipment. This asset-first approach provides a direct security interest, offering lenders a recovery path in case of default that cash-flow-based lending simply doesn’t provide. In an environment where defaults and restructurings are becoming more common, ABL delivers greater downside protection and preserves capital more effectively.

While many asset-based lenders rely on collateral such as inventory or equipment, there’s been a shift in recent years in which lenders are accepting a wider range of collateral. In order to help accommodate that, AXIS by AIO Logic allows users to add as many asset segments as required. This can include various segments of accounts receivable, inventory, machinery and equipment, real estate, and custom asset classes that can be defined by the user. Once the asset class is added, the user can specify a limit foe each segment, allowing for greater functionality.

2. Stronger Monitoring and Control Mechanisms

Asset-based structures allow lenders to maintain tighter control over credit exposure through ongoing collateral monitoring. Unlike direct lending, which may rely on quarterly financial reporting and backward-looking covenants, ABL enables lenders to track real-time asset performance, adjust borrowing availability dynamically, and respond proactively to risk signals. This level of visibility provides an operational advantage in portfolio risk management that lenders find increasingly valuable.

As such an important aspect of asset-based lending, we built AXIS by AIO Logic to include strong functionality relating to asset tracking and availability. To that end, AXIS will automatically calculate segment and rollup level eligible assets and availability, with handling for multiple and non-ABL facilities. Additionally, AXIS automatically calculates collateral values in real-time and aggregates data to track historical collateral levels and trends. These features are crucial for lenders as they seek to manage risk in these uncertain economic times.

3. Improved Recovery Rates in the Event of Default

Because ABL is secured by hard assets, lenders typically achieve higher recovery rates when things go wrong. In contrast, direct loans that are based on cash flow and enterprise value often see diminished recoveries during economic downturns or distressed sales. For lenders seeking capital preservation and long-term portfolio performance, ABL offers a more reliable exit strategy when borrowers experience financial stress.

One of the main advantages of asset-based lending is the lender’s ability to reclaim their capital through the loan’s collateral. Another way that asset-based lenders can minimize their level of risk is through setting concentration limits. With that in mind, we included automated concentration limits when building AXIS’s ABL module. This allows AXIS to automatically calculate account debtor concentrations and borrower concentrations and automatically calculate and apply user-set concentration limits.

4. Reduced Reliance on Volatile Earnings and Forecasts

With direct lending, loan performance hinges heavily on the borrower’s EBITDA and forward-looking projections—both of which can be unreliable in volatile markets. ABL reduces this dependence by anchoring credit decisions to tangible asset values rather than uncertain future earnings. This shift allows lenders to make more objective underwriting decisions, particularly when borrower performance is unpredictable or industry conditions are in flux.

With asset-based lending credit decisions based on the value of assets rather than future earnings, it’s crucial that lenders are able to track asset value in real-time. AXIS by AIO Logic allows them to do exactly that by automatically calculating collateral values in real-time and aggregating data to track historical collateral levels and trends. This not only allow lenders to make better lending decisions but also allows them to be proactive if risk arises within an existing loan.

5. Technology-Driven Efficiency Gains

Historically, ABL required labor-intensive monitoring and manual calculations, limiting scalability for lenders. However, modern automation tools have streamlined borrowing base reporting, collateral tracking, and compliance monitoring, making ABL far more operationally efficient. These technology-driven gains allow lenders to manage larger ABL portfolios with less overhead, increasing profitability and making ABL more competitive with direct lending on an efficiency basis.

As a truly end-to-end loan origination, servicing, and management platform, AXIS by AIO Logic is built with efficiency in mind. Since AXIS’s modules are designed to work together, users benefit from a cohesive interface, consistent user experience, and uniform data entry processes. This consistency simplifies training and allows employees to work efficiently across different functions within the same platform. This translates to higher customer satisfaction, quicker turnaround times, and better borrower retention.

Final Thoughts

The growing appeal of asset-based lending among lenders is no accident—it reflects a calculated response to shifting credit conditions, operational advancements, and a heightened focus on risk-adjusted performance. As lenders face mounting pressure to deliver returns while minimizing downside risk, ABL offers a proven framework that balances credit growth with disciplined underwriting. For many lenders, it’s no longer just an alternative to direct lending—it’s a strategic evolution. If your firm is seeking to expand, automate, and optimize its asset-based lending operations, feel free to contact us today to schedule an intro call and learn more about all that AXIS has to offer!