What the base counts before any advance rate
Start with trade AR that meets the eligibility exhibit: under a stated aging bucket, not an affiliate, not a disputed progress bill, and not over a concentration cap. Then inventory that is owned, countable, and not customer property. Then, on some facilities, M&E against a qualified OLV with a haircut. Ineligibles come out before the percentage is applied.
If you are buying a manufacturing business on ABL, availability is not a down payment. You still need equity. Buying above the SBA cap is the buyer-side twin when enterprise value sits over the published 7(a) box.
A field exam will test the classes. WIP takes a deeper haircut than finished goods because a liquidator cannot sell a half-finished housing as easily as a boxed spare.
When ABL shows up instead of cash-flow paper
When leverage or concentration makes a cash-flow senior or a 7(a) fail, but the book still has quality AR and countable inventory. Standard 7(a) still caps at $5 million (Source: SBA). Combined 7(a)+504 can reach $10 million only when occupancy and both programs fit (Source: SBA). Many $1–3 million EBITDA files sit above that box.
Census CBP 2023 counted 284,452 manufacturing establishments (Source: Census CBP). Most never need a sponsored ABL. The ones that do should still refuse a CIM that prints one inventory total.
| Product | What it prices | What it retests | Usual manufacturing use |
|---|---|---|---|
| 7(a) | Change-of-ownership inside $5M | Credit file, not a monthly base | Main Street shops that fit |
| 504 | Owner-occupied dirt and qualifying iron | Occupancy and CDC eligibility | Plant purchase |
| ABL | Eligible AR / inventory / sometimes OLV | Monthly certificate + exams | Above-cap or lumpy books |
| Mezzanine | Junior stretch after senior is maxed | Covenants and often warrants | Only if margin can carry the cost |
Why mezzanine is not a folklore substitute for ABL
Mezzanine shows up after senior cash-flow or ABL plus equity is already maxed, and only if margin can carry junior cost. It is not a substitute for the 10% 7(a) injection. It will not repair a 40% customer. IBBA Pulse Q1 2026 still showed competitive processes on larger files (Source: IBBA). A strategic paying cash and an ABL buyer are not the same closing risk.
Write two exhibits. The peg prices the close. The borrowing-base certificate tests Monday morning liquidity. The FAQ index owns the question. The compare page owns the stack.
Why does WIP wreck an otherwise pretty base?
WIP on an ABL file is usually a traveler plus an estimate plus metal that is only partly cut. A liquidator will not pay finished-goods money for that pile. Booking WIP at quoted margin instead of cost incurred invents availability. Quality-hold lots and obsolete parts stay ineligible even when the CIM rolled them into one inventory line.
Customer-owned materials and consignment wreck the same base. Tolling work can create AR without creating inventory the lender will take. A food plant with ingredients inside a remaining shelf life the examiner will not finance is a different base than a steel service center with plate that has a market. Do not copy a steel advance-rate rumor onto a food book.
Write two exhibits. The peg prices the close. The borrowing-base certificate tests Monday morning liquidity. If you use the peg average as opening availability, you will overpay for inventory the revolver will not advance against.
A 35% customer is not only a valuation haircut. It is a cap in the eligibility exhibit. If the cap is 25%, the extra 10% of that name is ineligible before the advance rate is applied. That is how a “strong book” produces a thin revolver. Headline working assets become a smaller opening number after E&O, customer-owned tooling, and WIP exclusions. That gap is the price conversation, not a surprise for month two.
The FAQ index owns the question. The compare page owns the stack. The ABL page owns the base math.
Mezzanine stretches leverage after senior cash-flow or ABL plus equity is already maxed. It is expensive and may include warrants or PIK — labeled as structure, not a quote. It is not a folklore substitute for the 10% injection. It will not repair a 40% customer. Senior already failing on the whale is a walk or a different file, not a warrant story. Many small shops never need a sponsored revolver. 7(a) remains the change-of-ownership product inside the published box.
Availability is not a down payment. You still need equity. WIP booked at quoted margin turns the base into fiction. Quality-hold is not finished goods. Write the peg and the borrowing-base certificate as two exhibits so month-two liquidity is not a surprise.
Standard 7(a) still caps at $5 million. Combined 7(a)+504 can reach $10 million only when occupancy and both programs fit. Many $1–3 million EBITDA files sit above that box. Those files use ABL plus equity, not a folklore second 7(a). Concentration caps can change after close if a customer grows. A 28% name that becomes 36% is ineligible surplus, not a valuation debate.
Jason Taken is a business broker. Educational information only. Confirm the base, the cap, and the rate with the lender. After you read the owner URL, book a confidential intro call if the file is real.