The U.S. Asset-Based Lending (ABL) industry as a whole has shown resilience throughout the pandemic and, despite prevailing uncertainty, 2021 brings with it opportunities and reasons for optimism.

A recent survey by SFNet found that, while new credit commitments decreased towards the end of 2020, the portfolio base has continued to increase, and non-accruing loans as a percentage of total loans outstanding have remained below 1 percent. This points to a high quality of customer and credit, even among all the disruption caused by the pandemic. Looking ahead, the survey’s Confidence Index also reflected improving sentiment, indicating lenders are optimistic about prospects for business conditions and their lending opportunities for the year to come.

Indeed, with corporates recognizing the value of strong supply chains and the pandemic pushing digitalization even higher on both borrower and lender agendas, there is an opportunity for technology-enabled ABL to have a strong 2021.

Corporates Looking to Shore Up Supply Chains

Middle-market ABL obligors have experienced a crisis-stricken year characterized by shortages, delays and unused inventory, which means that ensuring the health of supply chains is now a clear priority going forward. Indeed, a recent BDO survey found that 48 percent of public companies experienced high or moderate supply chain disruption in 2020, and it is likely more disruption is ahead – disruption that will have lasting impacts.

U.S. middle-market companies across all industries should, therefore, be focused on building more security into their supply chains. There is already an increasing focus in this segment on scenario planning, improving business agility and building resilience. This trend provides an opportunity for greater uptake of working capital finance solutions – particularly supply chain finance – that provide vital liquidity into supply chains to ensure resilience, increase efficiency and improve supplier relationships.

ABL Providers and Banks to Focus on Updating Systems

Looking at ABL providers, the U.S. market is, of course, vast and diverse. On average, the systems that many providers use are often still quite dated, especially compared to those seen in other global developed markets such as Europe. Many U.S. bank ABL platforms run on legacy systems that were designed a decade or more ago.

This means there is a great deal of scope for providers to upgrade their technology to remain competitive and meet customer expectations. Larger providers, in particular, are showing this willingness to spend on technology and upgrade their systems. This has only been accelerated by the shift to remote working. This trend is likely to continue through 2021 as the need to become nimbler and more agile becomes more and more of a business necessity.

ABL Technology – Digitalizing the Customer Experience

Looking more closely at ABL technology developments in the year ahead, there is a growing preference in the market for having all secured finance functions in a company accessed through one platform. There is already a level of structural consolidation in banks that are looking for cross-product and cross-service opportunities, which are all facilitated through secured finance activity and data feeding through a single platform.

There is also a growing trend and opportunity to fully digitalize the customer and lender experience. Recognizing this need, technology vendors are improving their ABL platforms to offer a more comprehensive suite of ABL features that digitizes the customer and lender experience. This level of functionality will be in demand more and more by the U.S. market in the years ahead.

Finally, technology can also be used to monitor liquidity or default risks. This is more relevant than ever given that the impact of the pandemic is likely to lead to more stringent lending requirements. Indeed, risk management and collateral monitoring will be high on lenders’ agendas, and this is enabled through having ever more granular data. With Open Banking initiatives ushering in an open data ecosystem, there is a natural evolution towards “Open Accounting.” This gives lenders access to the deep and contextual data within the accounting packages of their clients, allowing companies and lenders to better substantiate borrowing decisions and can lead to better, more tailored products and services from lenders.

Overall, businesses this year will be especially wary of falling behind the pack when it comes to technology and innovation. The middle-market companies that ABL providers tend to serve are set to prioritize digitalization as they look to ensure they can meet changing demands brought on by the pandemic. They will also seek to bolster security, and encourage and enable safe, remote working environments for their employees. And, with digitalization high on lender agendas, there is also an opportunity for fully digitalized ABL platforms and processes to aid lenders in re-establishing themselves firmly in the market.