Asset-Based Lending for Turnaround and Distressed Companies

When Banks Walk Away, ABL Steps In

A company losing money does not mean it lacks assets. And a company in distress does not mean it's unfundable. This is the fundamental insight that separates asset-based lending from traditional cash flow lending — and it's why ABL has been the go-to financing structure for turnaround situations for decades.

I've structured and placed ABL deals for distressed companies across manufacturing, distribution, retail, staffing, and services. Some were in Chapter 11. Some were on the verge. All had one thing in common: the assets were there, but the cash flow lending structure had broken down. The incumbent bank was exiting, and the company needed a lender who could look past the P&L and underwrite the collateral.

That's what ABL does. And when it's done right, it saves businesses.

Why Asset-Based Lending Works in Distress

Traditional lenders — banks, especially — underwrite cash flow. They want 1.25x debt service coverage, clean financial statements, and three years of consistent EBITDA. When a company's margins compress, when revenue drops, or when a restructuring event disrupts cash flow, the bank's credit model breaks. They classify the loan, restrict availability, and eventually ask the borrower to find alternative financing.

ABL lenders don't underwrite EBITDA. They underwrite collateral. The question isn't "can you service the debt from cash flow?" — it's "what are your receivables worth? What would your inventory fetch in an orderly liquidation? What's the net recovery value of your equipment?"

This collateral-first approach is why ABL thrives where cash flow lending fails. A manufacturing company with $30M in revenue, negative EBITDA, but $8M in quality receivables and $4M in saleable inventory can absolutely access a $7-8M ABL facility. The assets support the lending — the losses don't kill the deal.

For a broader understanding of how asset-based lending differs from traditional financing, read our complete guide to ABL.

Types of Turnaround ABL Structures

Distressed Refinance

The most common turnaround scenario: the incumbent bank is exiting. They've put the company on a workout list, they're reducing commitment, and they want out. The company needs to refinance into a lender who has appetite for the situation.

We handle these deals regularly. The key is speed and preparation. The borrower doesn't have months to shop — the bank exit is often on a 60-90 day timeline. We structure the borrowing base, identify ABL lenders with turnaround appetite, and get the deal placed before the bank pulls the plug.

Critical to these deals is a clean, independent assessment of the collateral. ABLC's field examination services provide the incoming lender with an objective evaluation of the borrower's receivables, inventory, and operational infrastructure — exactly what the credit committee needs to move quickly on a distressed refinance.

DIP (Debtor-In-Possession) Financing

When a company files Chapter 11, it needs working capital to continue operating during the reorganization period. DIP financing provides that capital, and it's almost always structured as an ABL facility because:

• DIP lenders get super-priority liens on the collateral — they're first in line for recovery.
• The bankruptcy court oversees the process, providing an additional layer of protection for the lender.
• Collateral value can be verified through court-ordered appraisals and field examinations.

DIP deals are specialized. Not every ABL lender does them. You need a lender with a dedicated special situations team and experience navigating bankruptcy court timelines. Matching the deal with the right DIP lender is critical — and it's something we do routinely.

Bridge-to-Turnaround Financing

Sometimes the company isn't in bankruptcy and doesn't want to be. They need interim financing to stabilize operations while the turnaround plan takes hold. ABL provides the bridge: a facility that keeps the lights on, pays suppliers, and funds payroll while management executes the restructuring.

These deals require a clear turnaround plan, realistic projections, and — most importantly — a lender who believes the plan is achievable. The credit package we build for bridge-to-turnaround deals includes detailed financial projections, variance analysis, and a narrative that explains why the business is viable despite current performance. For a detailed look at what goes into these packages, see our article on the ABL credit package.

What ABL Lenders Need to See in a Turnaround Deal

Turnaround ABL is not a free pass. Lenders will fund distressed companies — but they require specific elements that reduce their risk:

1. Quality Collateral

The assets must be real, verifiable, and liquidatable. Quality receivables mean diversified, current, and from creditworthy customers. Quality inventory means saleable, not obsolete, with reasonable turnover. Equipment needs to have verifiable market value.

If the collateral is questionable, the deal dies regardless of the turnaround narrative.

2. Clear Turnaround Plan

Lenders want to see what management is doing differently. Cost cuts, new management, operational restructuring, market pivots — there needs to be a credible plan with milestones and accountability. "Things will get better" is not a turnaround plan.

3. Competent Management

Turnaround lenders underwrite people as much as assets. Is the current management team capable of executing the plan? Has a turnaround professional been brought in? Is there a board-level advisory presence? Weak management is a dealbreaker even with strong collateral.

4. Adequate Reporting Infrastructure

Distressed companies often have degraded financial reporting. The lender will require enhanced monitoring — weekly borrowing base certificates, monthly financials, more frequent field exams. If the borrower can't produce accurate, timely reporting, the lender can't manage the risk. ABLC's borrowing base monitoring services provide lenders with the ongoing oversight that turnaround deals demand, covering A/R, inventory, and cash flow metrics in real time.

5. Professional Advisors

Turnaround lenders want to see professional advisors involved: turnaround consultants, restructuring attorneys, and experienced financial advisors. The presence of professionals signals that the restructuring is being managed deliberately, not reactively.

Common Mistakes in Turnaround Deal Placement

Most turnaround deals that fail don't fail because of the business — they fail because of how the deal was presented. We see the same mistakes repeatedly:

• Sending the deal to the wrong lenders — Not every ABL shop does turnarounds. Sending a DIP deal to a bank ABL department is a waste of time. You need lenders with dedicated special situations teams.
• Incomplete financial reporting — Distressed companies often have gaps in their financials. Those gaps must be addressed before the deal hits a lender's desk, not after. Our article on why ABL deals get declined covers this in detail.
• Unrealistic projections — Turnaround projections that show a hockey-stick recovery with no basis in reality get dismissed immediately. Conservative, well-supported projections build credibility.
• No urgency management — Turnaround deals are time-sensitive. If the incumbent bank is exiting in 60 days, there's no room for delays. The deal needs to be structured, packaged, and placed on a compressed timeline.

The DCE Approach to Turnaround Deals

We've been placing turnaround ABL deals for nearly 40 years. Our approach is direct:

1. Rapid assessment — Within 24-48 hours, we evaluate whether the deal has legs. If the collateral supports a facility and the turnaround plan is credible, we move.
2. Structure the deal correctly — Advance rates, reserves, covenants, and monitoring requirements tailored to the specific risk profile.
3. Target the right lenders — We know which lenders have appetite for turnaround deals, which industries they prefer, and what size transactions they target. No mass distribution — 3-5 targeted placements.
4. Manage the timeline — We coordinate the field exam (often through ABLC), the legal documentation, and the closing process to meet the borrower's deadline.

If you're facing an incumbent bank exit, a restructuring event, or a liquidity crisis, time is your most valuable asset. Don't waste it with brokers who mass-distribute your deal to 50 lenders. Get it in front of the right 3-5 who have appetite and can move.