At a distance, asset based lending (“ABL”) and traditional term loans can look interchangeable. Both are senior secured credit facilities. Both are documented with thick credit agreements, guaranties, and security instruments. Both fund acquisitions, working capital, and growth.

Up close, however, they behave very differently, especially in stress. An ABL facility is a collateral machine that expands and contracts based on what the borrower actually owns and can collect. A term loan is a credit bet on the borrower’s enterprise value and long term cash flow, with repayment largely divorced from day to day asset turnover.

And then there are the “middle layers” that routinely get lumped into the conversation even though they solve different problems. Revolving lines of credit (often shortened to “RLOCs” in deal shorthand) can behave like either product depending on how they are underwritten. Mezzanine loans are a different animal entirely, because they are usually designed to sit behind the senior layer and live with subordination and intercreditor choreography when a deal turns.

Understanding these distinctions is not academic. It determines who has leverage when things go sideways, how quickly liquidity can evaporate, and why lenders and borrowers often talk past each other when negotiating “availability.”

The Core Structural Difference Availability vs Commitment

A traditional term loan starts with a fixed principal amount. If the borrower satisfies closing conditions, the lender funds the loan, and the borrower owes that amount back over time, usually with amortization, a maturity date, and financial covenants tied to EBITDA, leverage, or coverage ratios.¹ Once funded, the lender cannot unilaterally reduce the principal outstanding simply because the borrower’s asset mix changes.

ABL flips that model. The headline “commitment” is not what the borrower can actually use. Instead, availability is determined by a borrowing base, a formula that applies advance rates to eligible collateral (typically accounts receivable and inventory), then subtracts reserves imposed by the lender.² If collateral shrinks or becomes ineligible, availability shrinks with it, even if the borrower has not missed a payment or breached a covenant.

A generic “RLOC” can look like either of these depending on how it is underwritten and documented. In practice, you will see at least two common flavors:

1. Borrowing base revolvers that are effectively ABL by another name, where draws are constrained by eligible collateral, reporting cadence, and reserve rights.
2. Cash flow revolvers that look more like a term loan underwriting philosophy but with revolving mechanics, often lighter on collateral eligibility haircuts and heavier on financial covenant triggers.

In practice, this is why a borrower can be “in compliance” under the credit agreement and still face an immediate liquidity crunch. Availability is a moving target in revolvers, and it moves for different reasons depending on whether the revolver is collateral driven or cash flow driven.

What the Lender Is Really Underwriting

Term lenders underwrite the business. Their risk analysis focuses on projected cash flow, margins, sponsor support, and enterprise value at exit. Collateral matters, but often as downside protection rather than the primary repayment source.³

ABL lenders underwrite the collateral. The core questions are not “Will EBITDA grow?” but “Are these receivables collectible?” and “How quickly can inventory be liquidated?” Field exams, appraisals, and perpetual reporting are not side features, they are the deal.⁴

A cash flow RLOC typically borrows more from the term loan worldview. Lenders care about EBITDA stability and covenant headroom, and the revolver is a liquidity backstop. An ABL style RLOC borrows from the ABL worldview. Lenders care about the composition and collectability of the borrowing base.

Mezzanine loans, by contrast, are usually underwritten as a risk and return layer sitting behind senior debt. They can be structured as second lien debt, structurally subordinated debt, or even unsecured debt supported by equity pledges and intercreditor rights.⁵ The mezz lender is not “just another senior lender.” The mezz lender is pricing for, and contractually accepting, a different loss position, different remedies, and different control rights.

That difference drives documentation. Term loan agreements spend pages on leverage ratios, restricted payments, and baskets. ABL agreements spend pages defining “Eligible Accounts,” “Eligible Inventory,” “Dilution,” and the lender’s discretion to establish reserves. Mezz documents spend pages on subordination, payment blockage, standstill, and the intercreditor choreography that determines what happens when defaults occur.⁶

Control as a Feature Not a Bug

From a borrower’s perspective, ABL can feel intrusive. Monthly, or weekly, borrowing base certificates, collateral audits, and springing cash dominion are operationally burdensome. But those features are not accidental. They are the economic justification for cheaper pricing and higher advance rates.⁷

ABL lenders expect to see trouble early. If availability falls below a threshold, cash dominion may spring, sweeping collections into a controlled account and forcing the borrower to request funds to pay operating expenses. In effect, liquidity becomes permissioned.

A cash flow RLOC is often lighter touch until a covenant breach or a borrowing condition fails, at which point control can shift abruptly through tightened covenants, reduced commitments, or “clean down” requirements. The borrower experiences this as a cliff rather than a gradual squeeze.

Mezz lenders typically do not get the same day to day operational control as the senior lender. Their leverage tends to be contractual and structural instead, payment blockage, consent rights, and the ability, or inability, to accelerate or exercise remedies depending on the intercreditor standstill. In other words, mezz control is often about when the mezz lender can act, not how the borrower runs its cash every week.

Why ABL Often Survives Where Term Loans Don’t

In downturns, this structural difference matters. When revenue softens, term borrowers can remain liquid until a covenant trip date, but once breached, negotiations are binary and often adversarial. Amendments require consensus, fees, and sometimes fresh equity.⁸

ABL borrowers feel pain sooner but in smaller increments. Availability tightens as receivables age or inventory slows, forcing earlier operational adjustments. From the lender’s perspective, that early warning system preserves collateral value and reduces the odds of catastrophic loss.

This is also where mezzanine debt behaves differently from both. In many structures, mezz can “ride through” a period of senior stress so long as the senior lender is being paid and the mezz is not blocked, because the mezz lender’s primary concern is preserving enterprise value through the cycle. But if the senior facility goes into hard default and remedies begin, mezz outcomes become almost entirely dependent on intercreditor mechanics and whether enterprise value exceeds the senior payoff.

The Hidden Flexibility of ABL And Its Risk

ABL’s flexibility cuts both ways. Because availability is formula driven, borrowers can often increase liquidity organically by improving collections, reducing dilution, or optimizing inventory turns. No amendment is required to unlock that value. It happens automatically through the borrowing base.⁹

But the same mechanism allows lenders to tighten credit without amending the agreement. Eligibility criteria, reserves, and permitted discretion give ABL lenders powerful levers to manage risk dynamically. From a legal perspective, those provisions deserve as much attention as pricing or commitment size, because they define the real loan.¹⁰

A cash flow revolver’s flexibility tends to come from covenant headroom and lender appetite rather than collateral math. That can feel easier until the moment it is not. When the trigger hits, the borrower may discover that “committed liquidity” was always conditional.

Mezzanine debt is flexible in a different way. It is often designed to tolerate volatility in exchange for higher pricing. But that flexibility is bounded by payment blockage, maturity walls, and refinancing risk. Mezz is not a working capital tool. It is a capital structure tool.

Choosing Between ABL and a Term Loan And Where Mezz and RLOCs Fit

The choice is not about sophistication. It is about fit.

ABL works best for asset heavy businesses with predictable receivables and inventory cycles, thin margins, or volatile earnings, retailers, distributors, manufacturers, and healthcare operators with reimbursement driven cash flows. Term loans work best where enterprise value and stable EBITDA can carry the credit, and where management needs autonomy over daily cash.¹¹

RLOCs often function as the bridge between those worlds. If the revolver is borrowing base driven, it will behave like ABL when stress arrives. If it is cash flow driven, it will behave like a liquidity sleeve on the term loan underwriting thesis.

Mezzanine loans usually enter the chat when a sponsor wants more leverage than the senior lenders will provide, or when a deal needs capital that behaves more like quasi equity than like senior secured debt. Mezz can be the difference between getting a deal done and not but it also introduces a second set of incentives and a second set of default dynamics that show up precisely when the business is under pressure.

Many capital structures use multiple layers. In split collateral deals, an ABL facility may sit on top of working capital assets while a term loan captures real estate, equipment, or enterprise value, and mezz sits behind the senior stack with second lien or structural subordination. The intercreditor agreement then becomes the constitution governing three different lending philosophies living under the same roof.¹²

Same Debt Vocabulary Different DNA

It is tempting to group ABL, term loans, RLOCs, and mezzanine debt together as leverage. Legally, some may even share the same borrower, guarantors, and collateral. Economically and operationally, they are not the same.

A term loan is a long term wager on the business. An ABL facility is a continuously recalculated claim on assets. A cash flow revolver is a covenant conditioned liquidity backstop. Mezzanine debt is a priced for risk layer whose outcomes are dominated by subordination and enterprise value.

Understanding which tool you are actually using, and which tool your counterparty thinks they are negotiating, goes a long way toward avoiding surprises when the numbers move.