Flexibility Is Driving the Evolution of Asset-Based Lending
This article was originally published in the October 2025 issue of Secured Finance Network’s The Secured Lender magazine.
Over recent years, the applications and perception of asset-based lending (ABL) have transformed. Once viewed as a financing option primarily used by distressed companies, those facing bankruptcy, or borrowers unable to meet cash flow requirements, ABL has evolved into a mainstream financing tool and is now recognized as a flexible and strategic solution for asset-rich companies.
Borrowers increasingly appreciate the flexibility that ABL offers, such as fewer covenant restrictions and operational advantages, particularly during periods of economic uncertainty. While historically popular in retail and asset-heavy industries, its use has expanded across a broader range of sectors, as hard assets are increasingly seen as powerful instruments for unlocking the value of their assets to support working capital, fuel growth and pursue mergers and acquisitions.
This evolution has coincided with a shift toward private credit. As ABL becomes more common in private equity, especially among firms seeking increased leverage and flexibility, borrowers now view it as a viable alternative to traditional bank financing. At the same time, regulatory pressures have made banks more risk-averse, pushing traditional funding into the private credit space. The result is a narrowing pricing gap between bank-originated ABL and private credit ABL. Additionally, the rise in private investor capital has introduced new ways to deploy funds with targeted risk-reward profiles, and ABL offers attractive, risk-adjusted returns.
Driving this asset-based lending evolution is flexibility. While ABL products increase flexibility for borrowers, there is still a gap in traditional capital structures.
RILO: A New ABL Solution
Traditional FILO facilities have served the market well for decades, but in certain situations, their higher cost and rigid prepayment terms can limit effectiveness, creating an all-or-nothing scenario for borrowers needing term debt over extended periods. Many borrowers have sought more adaptable capital solutions to address sporadic liquidity needs without the long-term commitment and cost burden of conventional FILOs.
Through engagement with our clients and listening to their needs, we recognized a gap in traditional capital structures. While they may be appropriate for some instances, first-in, last-out (FILO) lending facilities, can lack the flexibility needed for borrowers with intermittent liquidity needs. In response, we’ve evolved our offerings to better serve these dynamic requirements and developed a capital solution to address sporadic liquidity needs without the long-term commitment and cost burden of conventional FILOs.
Gordon Brothers’ new revolving FILO structure, RILOSM (Revolving-In, Last-Out), is based on an incremental advance rate, allowing borrowers to draw and repay funds flexibly. Rather than pairing a fully funded FILO with a traditional revolver, this structure offers an alternative that aligns financing costs with actual liquidity needs, providing borrowers with greater flexibility by enabling deeper access to asset value precisely when liquidity is needed most.
When liquidity demands are intermittent, RILO provides a lower-cost alternative to traditional FILOs, empowering first-lien lenders to better serve their borrowers while avoiding the constraints and expense of legacy FILO structures. In essence, RILO combines the payment flexibility of a traditional revolving credit facility with the additional liquidity a FILO provides. With a RILO, borrowers only pay when they draw, and it doesn’t alter their experience with the agent. Instead, it simply increases availability while being managed behind the scenes. Co-lenders also benefit from ongoing access to Gordon Brothers’ deep asset expertise, strengthening their position throughout the loan lifecycle.
| Traditional Revolving Credit Facility | First-In, Last-Out Term Loan | Revolving-In, Last-Out Term Loan |
|---|---|---|
| What: A loan structure that provides access to funds up to a pre-set credit limit | What: A fixed loan structure that lends deeper into the assets and/or assets not in the revolver BB and is repaid last among first-lien debts | What: A new flexible loan structure that provides incremental liquidity through the existing revolver, lending on existing and additional assets in the BB and is repaid last among first-lien debts |
| Collateral: Traditional advance rates | Collateral: Incremental advance rates | Collateral: Incremental advance rates |
| Who it Serves: Companies with working capital needs to run their business day to day | Who it Serves: Companies experiencing growth, seasonality, or transformation requiring additional liquidity longer-term | Who it Serves: Companies experiencing growth, seasonality or transformation, creating periodic needs for additional liquidity |
As we continue to evolve our suite of loan products, our focus remains on helping clients manage risk and strengthen relationships through less intrusive, cost-effective capital solutions. With RILO, we can dynamically adjust the level of risk mitigation throughout the loan lifecycle, making it an ideal product for companies experiencing growth, seasonality or transformation.
Increasing Optionality for Today’s Borrowers
As the evolution of ABL continues, today’s borrowers expect lenders to offer a large menu of options customized to suit the company’s specific needs to maximize liquidity and provide support to clients.
RILO represents one such option to deliver lower-cost liquidity without the burden of permanent, long-term capital. For existing borrowers, RILO enhances liquidity, delivers a single global facility with a blended interest rate. Once implemented, RILO operates seamlessly alongside the existing line.
Since launching the RILO product, Gordon Brothers has received strong market feedback from clients who value its ability to deliver lower-cost liquidity without the burden of permanent, long-term capital. Borrowers appreciate its flexibility and optionality, as well as the credit enhancement it provides to senior lending partners.
In the years to come, new financing options are likely to continue this trajectory: finding creative opportunities to leverage assets and maximize flexibility. At Gordon Brothers, we are committed to continuing to expand our product offering and develop new capital strategies that respond to the evolving needs of borrowers at every stage of the business lifecycle and deliver flexible, asset-based capital solutions that support long-term success.
To learn more, reach out to one of our experts or contact us.