Asset-Based Lending Commitments Grew in 2023 with Fewer New Clients, Larger Deals

Despite economic twists and turns in 2023, the asset-based lending market experienced growth in commitments of working capital, according to data released by the Secured Finance Network as part of its annual Asset-Based Lending Industry Survey, which surveyed bank and non-bank lenders. SFNet noted that while there were fewer new client deals last year than in 2022, the deals were larger in size.

“2023 was a year where, once again, asset-based lending demonstrated its value to middle-market companies in fueling the U.S. economy,” Richard D. Gumbrecht, CEO of SFNet, said. “New commitment growth slightly outpaced GDP as credit line utilization and portfolio performance moderated toward historical levels. Despite unprecedented Fed rate increases and market disruptions, lenders deployed essential working capital to businesses navigating their way toward the much-anticipated ‘soft landing.’ Looking forward, the industry remains healthy and stable, with growth appearing to have slowed nominally as we roll into 2024.”

Survey Highlights

For all lenders, asset-based loan commitments (total committed credit lines) were up 3.4% in 2023. The growth was greater for non-banks (12.7%) than banks (3.1%). New client commitments declined by 5.6% for banks but increased by more than 38% last year for non-banks. Commitment runoff, meanwhile, was down 19.2% for banks but rose 65.7% for non-banks.

As for total outstandings (total ABLs outstanding), there was a 7.8% decrease from the previous year for all lenders. The rate for banks was down 8.3% while non-banks experienced an increase of 6%. The utilization rate dropped for both lender groups. The wholesale industry had its share of client outstandings grow the most.

“The geographic location of both U.S. bank outstandings and clients shifted slightly from 2022 to 2023,” the report said. “The Northeast share of both outstandings and clients increased, while the West had a lower share of outstandings and the Midwest had a lower share of clients.”

Revenues grew faster than expenses last year, with increases relative to outstandings for both lender groups. The average return on assets decreased for banks but rose for non-banks. Banks also reported a drop in the average return on equity.

Portfolio performance was a soft spot in 2023, according to the report, with a rise in non-accruals and gross write-offs for all lenders. However, those held within historical ranges. Criticized and classified loans as a share of outstandings increased for banks.

“Demand for new business has been soft for banks, but non-banks are starting to report increased demand,” the report said. “Portfolio performance has declined compared to 2022 but remains within its normal historical range, albeit at the weaker end. Portfolios are not a major cause for concern, but lenders will be watching them closely for signs of stress. Looking ahead, the ABL industry is well-positioned to provide vital working capital when businesses need it most.”

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Terry Mulreany
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