The Enduring Case for Asset-Based Lending
Over the past several years, private credit has evolved from a niche allocation to a core component of many client portfolios. Along with that growth has come increased scrutiny and concern.
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Private Credit Has Changed. The Fundamentals Haven't.
Last fall and into early 2026, headlines questioned whether rising defaults, tighter liquidity, and economic uncertainty would significantly disrupt the private credit market. While those concerns warranted careful consideration, the experience has reinforced a timeless principle: not all private credit strategies are created equal.
As we move forward, investors are best served by revisiting the fundamentals. Understanding how a strategy is structured, what secures its loans, how risk is managed, and where returns are generated provides a clearer picture of its long-term role in a diversified portfolio.
Asset-Based Lending Has Become a Mainstay of Private Credit Allocations
The evolution of advisor allocations toward private credit offers an important perspective. AFA’s 2025 RIA Private Credit Usage Study found that 70% of RIAs allocate to private credit. Within private credit, ABL has emerged as the second most popular strategy, and is now present in 65% of advisor private credit allocations – up from 42% in the prior year.1
Rather than asking whether to invest in private credit, advisors are increasingly focused on how to allocate within the asset class, recognizing the benefits of strategies with distinct risk and return drivers. ABL’s growing adoption predates the recent headlines that have intensified scrutiny of private credit.
Why Asset-Based Lending Can Be Resilient
Asset-based lending offers several characteristics that can make it a compelling complement to other private credit strategies.
1. Loans Are Secured by Tangible Assets
At its core, asset-based lending is exactly what its name suggests: loans are secured by identifiable business assets, including:
- Accounts receivable
- Inventory
- Equipment and machinery
- Vehicles and transportation assets
- Commercial real estate
- Other tangible business assets
The collateral provides an additional layer of risk mitigation for lenders.2 Rather than relying primarily on a company’s future cash flows or enterprise value, ABL underwriting focuses on the value and liquidity of the specific assets supporting the loan, which may provide downside protection should the loan become stressed.3
2. Conservative Underwriting and Ongoing Monitoring
ABL is also distinguished by how loans are underwritten and monitored. Borrowing capacity is typically tied to the value of eligible collateral through a borrowing base, allowing credit availability to adjust as collateral values or outstanding receivables change.
This dynamic structure is supported by:
- Conservative advance rates
- Borrowing-base calculations
- Frequent collateral reporting
- Regular monitoring of underlying assets
- The ability to adjust availability as conditions change
This differs fundamentally from lending models that rely primarily on a company’s enterprise value and its ability to generate cash flow over time.
3. Shorter Duration Loans
Many ABL facilities are relatively short in duration and structured with both fixed and floating interest rates, providing flexibility as market conditions change.4
Shorter duration loans can offer:
- Less exposure to long-term interest-rate movements
- More frequent opportunities to reprice
- Greater flexibility to re-position the portfolio as opportunities evolve
4. Active Risk Management
Ultimately, the strength of an ABL strategy depends on more than the collateral itself. The manager’s ability to underwrite, monitor and manage that collateral is critical.
A disciplined ABL approach emphasizes:
- Underwriting: Understanding the borrower, collateral and source of repayment
- Collateral: Properly assessing the value of the collateral and the ability to liquidate if necessary
- Monitoring: Continuously assessing collateral and borrower performance
- Risk management: Taking action as conditions change
- Experience: Applying specialized knowledge to complex borrowers and collateral
The objective isn’t simply to generate yield.5
It is to structure loans with an appropriate balance of income and collateral protection.
Not All ABL Is Created Equal: AFA’s Approach to Asset Based Lending
We believe AFA’s approach to ABL is distinctive compared to some of the large-scale ABL managers. We focus on sourcing smaller loans through more than 20 specialized, boutique ABL lending platforms. We believe this approach offers two potential advantages: 1) smaller loans can be difficult for larger lenders to access and therefore may face less competition, and 2) specialist lenders can bring deep expertise to underwriting specialized collateral.
The portfolio is highly diversified across industries, with approximately 650 individual loan positions.6
Since the Fund’s inception more than 5 years ago, the credit issues we have encountered have tended to be idiosyncratic and borrower-specific rather than industry-wide.
For investors wanting to allocate to ABL, we believe our differentiated approach provides an additional layer of diversification.
If you’d like to learn more about the AFA Asset Based Lending Fund, visit our website or reach out to me directly at mike.jancosek@alternativefundadvisors.com.
Notes and Definitions
1 Source: AFA 2025 RIA Private Credit Usage Survey.
2 Collateral may provide a potential source of repayment if a borrower defaults. However, collateral does not eliminate the risk of loss. Collateral values may decline, collateral may be difficult or costly to liquidate, liens may be challenged or prove unenforceable, and liquidation proceeds may be insufficient to repay the loan.
3 Enterprise value measures a company's total value, acting as a theoretical takeover price or the true cost of buying the entire business. Cash flow is the total amount of money moving into and out of a business over a specific period.
4 Duration is a measure of how much the price of a bond or bond fund will change when market interest rates go up or down.
5 Yield is the annual income (such as interest or coupon payments) earned from a security.
6 Data as of 7/31/2026.
Disclosures
Alternative Fund Advisors, LLC (“AFA”) does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does AFA recommend that the information presented serve as the basis of any investment decision. Opinions expressed are those of the author and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
Please read the prospectus carefully before you invest. Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. This information is contained in the Fund Prospectus and a copy may be obtained by calling 800-452-6804 or by email at info@alternativefundadvsiors.com.
AFA is the investment adviser of the AFA Asset Based Lending Fund, a continuously offered closed-end interval fund. The Fund’s investment in private credit securities is speculative and involves a high degree of risk, including the risk associated with leverage. An investment in the Fund is subject to, among others, the following risks:
- The Fund is not intended as a complete investment program but rather the Fund is designed to help investors diversify into private credit investments. You should invest only if you can sustain a complete loss of your principal.
- Shares are appropriate only for those investors who can tolerate a high degree of risk, and do not require a liquid investment.
- The Fund is a “non-diversified” management investment company registered under the Investment Company Act of 1940. Since the Fund is non-diversified, it may be subject to higher reduction of capital and volatility than a fund more proportionately allocated among a large number of securities.
- The Fund may leverage its investments by borrowing. The use of leverage increases both risk of loss and profit potential.
- The Fund is subject to large shareholder transaction risks which may cause the Fund to sell portfolio securities at times when it would not otherwise do so satisfy large shareholder redemptions.
- Shares of the Fund are not listed on any securities exchange, and it is not anticipated that a secondary market for shares will develop.
- The Fund is required to make quarterly repurchase offers, which are expected to be 5%, but may range from 5% to 25% subject to approval by the Board of Trustees. There is no guarantee that shareholders will be able to tender their shares when or in the amount they desire. If a purchase offer is oversubscribed, shareholders will only be able to have a portion of their shares repurchased
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