The Rise of Asset-Based Lending
September 2024
I. Introduction to asset-based lending
Asset-Based Lending is a type of financing collateralized by a specific pool of cash flowing assets that serve as the primary form of repayment to the lender.
September 2024
Asset-Based Lending is a type of financing collateralized by a specific pool of cash flowing assets that serve as the primary form of repayment to the lender.
ABL has emerged as a large opportunity within private credit, and investors are increasing allocations to the asset class.
Typical asset types used as collateral in asset-based lending transactions:
Real estate
• Residential Mortgage Loans
• Commercial Mortgage Loans
• Real Estate Loans
• Home Equity Lines of Credit
• Mortgage Servicing Rights
• Residential Transition Loans
• Single Family Rentals
• Timeshare
Traditional and consumer
• Auto Loans/Leases
• Credit Card Receivables
• Marketplace Loans
• Personal Loans
• Point-of-Sale Loans
• Solar Loans
• Student Loans
• Equipment Leasing
• Aircraft
• Shipping Containers
Corporate and esoteric
• Corporate Loans
• Small Business Loans
• Account Receivables
• Floorplan
• Tax Receivables
• Whole Business
• Cell Towers
• Data Centers
• Royalties (Music, Drug)
• Structured Settlements
There are a variety of ways to gain exposure to private ABL with varying risk-return profiles via diversified private funds, interval funds, closed-end funds, and other private credit vehicles (e.g. single transaction special purpose vehicles (“SPVs”), private securitizations). Before being bundled into a pool of assets, the loans are issued as whole, un-tranched components.
Whether investors choose to participate in private or public asset-based transactions, the structures are typically the same where one entity holds all the loans (assets) that are solely encumbered by the liabilities issued against them (e.g. notes, warehouse debt, direct facilities).
Lenders that choose to sell their loans typically place them into SPVs or trusts.
Loans in SPVs can be financed either via public or private markets.
All principal and interest cash flows generated by the underlying loans in the SPVs go to pay investors according to a prescribed waterfall.
We estimate the size of the Private Asset-Based Lending market to be approaching $15 trillion based on the categories below. The largest market is the private mortgage market which we estimate to be almost $8 trillion, split into ~$5 trillion residential and nearly $3 trillion commercial. There are several asset classes within the private Asset-Based Lending market that are each over $1 trillion in size and growing such as autos, small business, equipment, and credit cards.
1. Federal Reserve, Federal Reserve Bank of New York, CFPB Factsheet, JP Morgan, Equipment Leasing and Finance Association – as of March 2026.
Retrenchment in bank lending and reduced appetite for risky assets have been driven by two recent developments: (1) the liquidity pressure and asset impairment resulting from the Fed’s aggressive tightening campaign beginning in early 2022, and (2) the proposed stricter regulatory guidelines related to capital treatment of bank assets (Fig. 3: Large banking institutions shedding riskier assets)2. Private lenders are stepping in to fill the financing gap – particularly for small-to-medium sized commercial borrowers and consumers. Consumers and corporate borrowers that are unable to acquire traditional forms of capital have increasingly turned to asset-based lenders, utilizing their assets rather than their credit ratings and cash flows to secure financing.
2. Federal Reserve Bank of New York Research and Statistics Group – as of Q3 2025.
| Asset-Based Lending | Corporate "Middle Market" Direct Lending | |
|---|---|---|
| Estimated Yield3 | 8-16% | 8-15% |
| Investment Metrics | Asset Coverage | Debt / EBITDA; Interest Coverage |
| Amortization | Self-Amortizing | Bullet Maturity |
| Average Life | Shorter | Longer |
| Covenant Protection | High | Moderate |
| Hard Collateral | Required | Not Required |
| Underlying Asset Value Volatitlity* | Lower Variability | Higher Variability |
| Issuers per Deal | 1 to 1000's | 1 |
| Example Deal Types | Transportation lending, equipment financing, supply chain finance, real estate lending, receivables factoring, consumer loans, credit card loans | Sponsor and non-sponsor backed middle market direct lending, distressed debt & special situations |
| Typical Correlation to Other Risky Assets | Low | Moderate |
For ABL, the complexity or idiosyncratic portion of this risk premium tends to be higher than what is seen in corporate direct lending due to nuances related to deal structure, collateral idiosyncrasies, or “esoteric” sector exposure. Direct Lending tends to be more well understood and widely accepted with respect to structure and collateral.
4. Data sourced from Bloomberg, J.P. Morgan, and Nomura Capital Management as of July 2026. Non-IG = Non-investment grade bond, considered a low quality investment because the issuer may default.
Direct lending deals are typically structured with a 5–7-year bullet maturity, meaning investors should expect to receive periodic interest payments and a lump sum principal payment at maturity. Asset-based loans are generally structured with amortization payments linked to the gradual pay down of their underlying collateral. Investors would therefore receive a combination of periodic interest and principal throughout the life of the investment, protecting them from interest rate risk by lowering the duration of the asset. These two types of amortization schedules are visualized below.
Private Asset-Based Lending has had historically lower correlations with other asset classes5.
Investors in asset-based transactions may benefit from natural diversification arising from the high number of underlying loans that typically go into the SPVs. In public markets, investors may or may not have full access to loan-level data. However, in private markets, investors usually have access to more granular data which they can use to do a more robust, quantitative risk analysis. Therefore, collateral value in asset-based transactions may be more stable than collateral value in cash flow based Direct Lending.
5. Data sourced from Preqin, Bloomberg, Cliffwater, Dow Jones, Markit, and Morningstar. Past performance is no guarantee of future returns. Performance returns for “Asset-Based Lending” category contained herein, and the related correlation statistics from which they were 0.28 0.58 0.54 0.40 0.62 0.62 0.68 0.38 1.00 6 derived, were calculated by Nomura Capital Management LLC (“NCM”) for the period 2012-2025.
We believe the biggest risk in ABL is losing value in the underlying collateral, whether driven by higher defaults or lower recoveries.
In ABL, investors typically price transactions to a timing curve, giving higher credit to the earliest, most predictable cash flows while putting a higher discount on the farther, least predictable cash flows.
Prepayments refer to principal payments ahead of the predetermined schedule, which are common in ABL and usually inversely related to rates: the lower the rates, the higher the propensity for borrowers to refinance or prepay.
Just like in the public equity market, prices also move in ABL (on the underlying loans as well as on the tranches of the structures). Given the lower liquidity, prices in ABL tend to be less volatile as they are usually driven by collateral performance and lower transaction volume.
While we believe this is generally a fairly low risk, fraud and misrepresentations are still possible. Over the past decade, lenders, investors, and lawmakers have significantly reduced the incidence of fraud through tighter underwriting guidelines, stronger covenants, and help from new regulations.
This is usually a systemic risk specific to asset classes and generally difficult to avoid. Governments can always launch programs that affect a broad space, such as payment moratoria in student loans, principal forgiveness in mortgages, or new regulations addressing consumer asset classes.
The key to understanding the risks in any credit market is not only understanding the level of default rate and loss given defaults, but also the level of “protection” an investor has against those losses – different factors affect the degree to which an investor is insulated from loss, with the most significant considerations given to: (1) level of subordination in the capital structure, (2) how wide the tranche attachment and detachment points are, (3) how predictable and variable losses on a particular collateral type will be, (4) the loan to value ratio of the collateral, and (5) the degree to which the loans are secured – first lien (“1L”), second lien (“2L”) or unsecured.
While the default rates in the Asset-Based Lending sectors shown above6 may look optically higher than in the Corporate examples of High Yield bonds or Leveraged Loans, there are two factors that we believe are mitigants to losses for investors in ABL:
6. Morningstar LSTA Leveraged Loan Index (last twelve months default rate by amount) from PitchBook LCD as of 5/31/2026, JPMorgan’s JPM US HY bonds par-weighted LTM default rates as of 5/31/2026, JPMorgan US ABS Research “ABS Performance Statistics” as of 5/27/2026. 2026 data corresponds to last twelve months as of 5/31/2026. Default rates for the traditional consumer loan types consist of simple trailing twelve month averages of reported default rates as tracked by JPMorgan across all available data from US public securitizations.
Asset-Based Lending is an asset class that we believe offers a strong risk reward profile, high levels of diversification, and growth in market size due to both secular shifts and more transitory trends. ABL provides financing to a wide range of sectors within the economy, and investors can gain exposure to the asset class through multiple access points across the risk spectrum. The characteristics of ABL can offer complementary portfolio construction benefits relative to traditional Corporate Middle Market Direct Lending.
Disclaimer
Nomura Capital Management LLC (“NCM”) is a registered investment adviser. The information set forth herein, or in any of NCM’s market commentaries or similar writings or publications, is for informational purposes only and does not constitute financial, investment, tax or legal advice. This information is intended to be informational in nature and, by receiving this communication, you agree with its intended purpose described above. The views and/or strategies described in this communication may not be suitable for all investors. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that consider the particular facts and circumstances of an investor’s own situation. All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this communication will be profitable, perform equally to any corresponding indicated historical performance level(s), or be suitable for your portfolio.
These materials reflect the opinion of NCM on the date of production. Opinions and statements of financial market trends that are based on current market conditions constitute our judgement and are subject to change without notice. Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, NCM does not independently verify or otherwise warrant the accuracy of this information. All investments are subject to risks, including the risk of loss of principal.