If you are an early or growth-stage DTC or CPG brand exploring debt financing, you've probably come across two non-bank options: asset-based lending vs revenue-based financing. Both are non-dilutive working capital solutions, meaning you keep your equity, but they work very differently and serve very different situations.
This guide breaks down each financing solution: how they differ, where each makes sense, and what to know before signing anything.
What Is Asset-Based Lending (ABL)?
Asset-based lending lets you borrow against the value of your business’s working capital assets, primarily finished goods inventory and accounts receivable. Your credit line grows as your business grows. The more inventory you’re holding and the more invoices you have outstanding, the more you can access.
Repayment is tied to your actual cash conversion cycle. As your inventory sells and your customers pay (think UNFI, Target, Sephora, or your Shopify store), that cash flows back to the lender to pay down your loan balance. When you need to build inventory again, you draw back down. It’s a revolving structure, not a fixed loan.
What Is Revenue-Based Financing (RBF)?
Revenue-based financing lets you borrow a lump sum upfront, typically a multiple of your average monthly revenue. You repay it as a percentage of ongoing sales, which sounds flexible, but the total amount owed is fixed at a factor rate from day one. If your revenue dips due to seasonality, a slow month, or a delayed wholesale order, you’re not off the hook. Payments get smaller while the debt hangs around longer, and the same fixed cost spread over more time means a higher effective rate than you originally modeled. RBF can make sense as a short-term bridge when you have strong revenue on the horizon and need capital fast, but for most growing CPG brands, it’s a starting point, not a long-term solution.
Asset-Based Lending vs Revenue-Based Financing
Side-by-Side Comparison
| Asset-Based Lending (ABL) | Revenue-Based Financing (RBF) | |
|---|---|---|
| Basis for Borrowing | Value of inventory + receivables | Multiple of monthly revenue |
| Repayment Structure | Revolving; tied to cash conversion cycle | Fixed % of monthly revenue |
| Credit Line Behavior | Grows with your assets as you scale | Fixed at origination; resets per advance |
| Cost of Capital | Generally lower | Generally higher |
| Best For (Company Profile) | Branded DTC, Shopify, wholesale, retail, and omnichannel brands | Amazon-native and subscription-based businesses |
| Risk in a Downturn | Lower; repayment follows sales | Higher; revenue volatility can strain repayment |
Benefits and Risks
With variable cash flow due to factors like seasonality, shifts in consumer demand, or product development cycles, ABL can offer more flexible repayment around these ebbs and flows. The loan amount can also be adjusted based on the value of the company’s assets, which means the credit line can increase as the brand scales.
RBFs can be fickle, putting your business in a difficult position when facing issues often out of your control: supply chain disruptions, stocking out of key items, ad spend not hitting, market volatility, large wholesale orders falling through or getting pushed out. When any of these hit, the result can be a downward spiral: less cash, less inventory, less revenue, and ultimately no ability to repay.
For brands with variable cash flow, ABL is a more forgiving structure. Repayment happens as inventory sells and receivables clear. If a big wholesale order gets pushed, you’re not scrambling to make a payment out of cash you don’t have.
When Each Option Makes Sense?
Go with Asset-Based Lending (ABL) If…
- You’re holding $500K or more in finished goods inventory
- You have retail or wholesale accounts paying on net-30, net-60, or net-90 terms
- Your revenue has seasonality or is lumpy due to large wholesale orders
- You’re preparing for a major retail rollout or new distribution push
- You’re moving from DTC into wholesale or retail distribution
- You want a line of credit that scales with your business over time
Go with Revenue-Based Financing (RBF) If…
- You’re earlier stage and don’t have significant inventory to pledge
- You need capital in days, not weeks, for a time-sensitive opportunity and have modeled the cost carefully
- You have highly consistent, subscription-driven revenue with very limited seasonality
What to Ask Before You Sign Anything
- What is the all-in cost of capital? Get an APR equivalent, not just a factor rate or fee.
- How does repayment work if my revenue drops 30%? Model the downside scenario before you’re in it. A 13-week cash flow model is a good place to start.
- Does the credit line grow as my business grows? For ABL, the answer should be yes. For RBF, typically no.
- What happens if I hit a supply chain issue or a large order gets pushed? Understand the lender’s flexibility before you need it.
- Is this financing structured for my stage, or am I retrofitting a product designed for someone else? This one matters more than most founders realize.
The Bottom Line
Both ABL and RBF have a place in the financing ecosystem for eCommerce and CPG brands. RBF can be a useful tool when you need capital fast and have predictable revenue to back it up, but it’s worth exploring a more flexible, lower-cost structure as soon as your business qualifies. For growth to late-stage brands with inventory, receivables, and DTC or omnichannel distribution, the profile of most brands we work with at Dwight, ABL is almost always that next step. It’s built around how your business actually works, not just how much revenue you’re generating in a given month.
Every brand’s situation is different. Talk to the Dwight team to figure out what makes sense for yours.
Frequently Asked Questions
What size business typically qualifies for ABL?
It depends on the lender. Different lenders have different requirements, and there are options at every stage. At Dwight, we work with brands across early, growth, and late stages. The common thread is meaningful inventory and/or accounts receivable to borrow against. Our sweet spot is growth-stage brands generating meaningful revenue through retail, wholesale, or DTC channels that need a credit facility that grows with them, but we work with brands at a range of stages depending on the opportunity.
Is ABL considered debt on my balance sheet?
Yes, a drawn ABL facility appears as debt on your balance sheet. RBF is typically treated the same way by institutional investors regardless of how it’s structured. Either way, understand how it affects your cap table narrative before your next equity raise.
How long does it take to get an ABL facility in place?
Plan for one month from term sheet to close, depending on how quickly you can provide financials and how complex your collateral is. At Dwight, our Atlas platform is built to streamline onboarding and document management, so the process moves considerably faster than a traditional ABL lender. If you have a time-sensitive need, it’s worth having that conversation early.
Dwight provides asset-based credit facilities from $1M to $20M for early, growth, and late-stage eCommerce and CPG brands across food, beverage, beauty, apparel, and more. If you think ABL might be the right fit for your business, contact us to talk through your options.
