Asset-Based Financing Models in Turkey

Asset-based financing (ABL) is built on a simple idea: credit should follow value. Instead of lending primarily against a borrower’s balance-sheet strength or projected cash flows, the lender focuses on identifiable assets—receivables, inventory, machinery, and sometimes bank accounts and structures the facility so that loan availability expands or contracts with the value of those assets.

In Turkey, asset-based financing has become increasingly relevant for companies operating in volatile markets, import-dependent supply chains, and sectors where working capital is the main constraint. It is also a practical tool for foreign investors, trade finance providers, and lenders seeking to reduce unsecured exposure. Yet ABL in Turkey is not “one product.” It is a family of models that differ in collateral logic, monitoring intensity, and enforcement reality.

This article explains the most common asset-based financing models used in Turkey, the collateral mechanics behind them, and the legal and practical risks that determine whether the structure is truly bankable.

1. What Counts as Asset-Based Financing in Turkey?

In the Turkish market, “asset-based financing” typically refers to financing where:

• the borrowing base is tied to a pool of assets (usually receivables and/or inventory),
• collateral is structured to create third-party effect (perfection),
• availability is monitored through reporting and covenants,
• and enforcement is designed with operational reality in mind.

ABL is different from traditional term loans in one key way: monitoring is not optional. ABL works because the lender can verify and control collateral value continuously (or at least periodically). Without that discipline, the structure becomes a normal unsecured loan with extra paperwork.

2. The Main ABL Models Used in Turkey

2.1. Receivables Financing (Borrowing Base on Invoices)

This is the most common ABL model in trade-heavy sectors. The lender advances funds based on eligible invoices, often using eligibility criteria such as:

• invoice age limits (e.g., not older than X days),
• customer concentration caps,
• exclusion of disputed invoices,
• exclusion of related-party receivables,
• proof of delivery/acceptance where relevant.

Strengths:

• aligns financing with actual sales activity,
• scales with turnover,
• can be relatively liquid in enforcement if receivables are collectible.

Risks:

• customer set-off and defenses,
• returns and quality disputes,
• fake invoices or circular trading,
• operational weakness in receivables tracking.

Practical best practice: require receivables aging reports, customer lists, and periodic audit rights. For higher-risk profiles, lenders may request collection-routing controls.

2.2. Factoring (With or Without Recourse)

Factoring is widespread in Turkey and often overlaps with ABL logic. In simple terms:

• the company sells receivables to a factoring company or bank,
• the financier provides immediate liquidity,
• repayment is tied to collection from the debtor (with or without recourse to the seller).

With recourse structures preserve creditor exposure to the seller; without recourse structures shift credit risk more toward the receivable debtor, but pricing and eligibility become stricter.

Typical risks:

• debtor disputes,
• set-off,
• contract restrictions on assignment,
• concentration risk,
• documentation mismatch between invoices and actual delivery.

2.3. Inventory Financing (Warehouse/Stock-Based Lending)

Inventory-based financing is conceptually attractive but operationally difficult. Inventory is dynamic: it is sold daily and replaced. In Turkey, lenders typically become comfortable with inventory financing only when:

• inventory is standardized and easily valued,
• storage is controlled (warehouse, bonded warehouse, third-party logistics),
• reporting is reliable,
• and extraordinary disposals are restricted.

Inventory financing structures often rely on:

• periodic inventory counts and reconciliations,
• warehouse receipts and documentation,
• insurance coverage,
• covenants limiting sales outside ordinary course.

Core risk: the “empty warehouse” problem—by the time enforcement starts, inventory is gone.

2.4. Machinery and Equipment Financing (Fixed Asset ABL)

Machinery-based facilities are common in manufacturing and logistics. The collateral is more stable than inventory, but it has its own problems:

• valuation volatility for specialized equipment,
• relocation and hidden disposal,
• title issues (finance leasing),
• maintenance and depreciation.

Best structures include:

• serial-number schedules,
• location tagging,
• insurance and maintenance covenants,
• restrictions on relocation without consent,
• periodic site inspections.

2.5. Trade Finance and Supply-Chain Finance (ABL Adjacent)

Trade finance often uses ABL-style collateral logic:

• import/export finance secured by goods in transit,
• documentary credits, guarantees,
• supplier finance programs tied to approved payables,
• purchase-order finance in certain sectors.

These models depend heavily on document flow, operational controls, and sometimes customs/bonded warehouse realities.

2.6. Hybrid ABL Packages (Receivables + Inventory + Fixed Assets)

Banks in Turkey frequently structure “packages,” not single instruments. A typical hybrid ABL package might include:

• receivables financing as the main borrowing base,
• inventory as secondary collateral,
• machinery/security to stabilize recovery,
• guarantees and covenants as personal security layers.

The package approach reduces the risk that one collateral class fails at the worst time.

3. The Collateral Toolkit Behind ABL: What Actually Secures the Loan?

ABL is not only a pricing model; it is a collateral and control system. In Turkish practice, common collateral building blocks include:

• movable security over machinery/equipment,
• enterprise-level collateral structures where appropriate,
• receivables pledges/assignments for security,
• share pledges (especially in group structures),
• account control / cash routing arrangements where feasible,
• mortgages when real estate exists,
• guarantees as an extra enforcement channel.

A lender’s priority is not to “collect documents,” but to make collateral identifiable, monitorable, and enforceable.

4. Perfection and Priority: The Legal Backbone of ABL

Even the best borrowing base model can fail if perfection is weak. In practice, ABL lenders focus on:

• correct registry/perfection steps,
• consistent collateral descriptions between agreements and registry entries,
• evidence files that can survive insolvency scrutiny,
• lien searches to identify prior encumbrances.

Priority risk often comes from:

• earlier perfected security interests,
• statutory privileged claims,
• ownership disputes (leased assets, retention-of-title),
• vague collateral definitions that invite overlap litigation.

5. Monitoring: The Real Engine of ABL

ABL works because of monitoring. Typical monitoring tools include:

• monthly or weekly borrowing base certificates,
• receivables aging and dilution reports,
• inventory reports and warehouse counts,
• audit rights and field exams,
• concentration limits and eligibility rules,
• covenant triggers that tighten controls when risk increases.

Without monitoring, ABL collapses into “unsecured lending with collateral language.”

6. Enforcement Reality: Liquidation vs. Going-Concern Value

ABL enforcement is rarely “one button.” In distress, lenders must decide:

• liquidate collateral quickly, or
• preserve going-concern value through restructuring.

Receivables may be collectible, but disputes can spike. Inventory may be saleable, but it can disappear. Machinery may exist, but buyers may be limited. This is why experienced lenders:

• plan enforcement from day one,
• maintain updated collateral schedules,
• secure insurance proof,
• and structure covenants to prevent value leakage early.

7. Common Mistakes That Make ABL Fail in Turkey

1. Over-reliance on paper collateral without operational controls.
2. Weak title diligence (leasing surprises).
3. Vague collateral scope leading to priority disputes.
4. No realistic collection control for receivables.
5. Inventory without warehouse discipline.
6. Delayed perfection treated as post-closing admin work.

Conclusion

Asset-based financing in Turkey is a powerful set of models for companies needing working capital and for lenders seeking structured risk control. The strongest ABL structures combine three elements: a credible borrowing base, legally perfected collateral, and operational monitoring that prevents value leakage. When these elements align, ABL can deliver scalable liquidity, stronger recoveries, and more resilient financing—even in volatile markets.