Asset-Based Lending: Regional Banks and Niche Markets Drive Sector Growth in 2025

The asset-based lending (ABL) sector is undergoing a transformative phase in 2025, driven by regional banks’ strategic expansion into niche markets and a surge in credit demand from asset-rich, cash-constrained businesses. As traditional banks retreat from riskier lending segments due to regulatory constraints and capital optimization pressures, regional institutions are stepping in to fill the void, leveraging ABL’s flexibility to serve underserved industries. This shift is not only reshaping credit availability but also creating compelling investment opportunities in a market projected to grow to $1.43 trillion by 2029 [1].

The ABL Boom: Drivers and Projections

The ABL market expanded from $785.6 billion in 2024 to $896.12 billion in 2025, fueled by global economic volatility and the rising demand for non-traditional financing [1]. Regional banks are capitalizing on this growth by offering tailored ABL solutions to small and medium-sized enterprises (SMEs), which often lack access to traditional credit lines. For instance, Pacific Western Bank recently sold $3.5 billion in asset-backed loans to Ares Management and $2.6 billion in real-estate construction loans to Kennedy-Wilson Holdings, illustrating how regional lenders are offloading high-risk portfolios to focus on core operations [1].

Technological advancements are further accelerating ABL adoption. Artificial intelligence (AI) and risk analytics are streamlining credit decisioning, enabling lenders to assess collateral values and borrower creditworthiness more efficiently [1]. This has expanded the scope of eligible collateral beyond traditional assets like inventory and receivables to include esoteric categories such as healthcare royalties and software-related revenue streams [3].

Regional Banks: Strategic Partnerships and Niche Focus

Regional banks are forming partnerships with private credit managers to enhance their ABL capabilities while mitigating risk. For example, Apollo and BNP Paribas launched a $5 billion joint venture to support investment-grade, asset-backed credit, while Sixth Street partnered with Affirm Holdings to invest up to $4 billion in asset-backed loans [5]. These collaborations allow regional banks to access specialized underwriting expertise and scale their ABL portfolios without overextending balance sheets.

Niche markets are emerging as key growth areas. In the U.S. middle market, hybrid ABL-private credit facilities—combining ABL’s collateral discipline with private credit’s flexibility—are growing at 15% annually, with structures like Pathlight Capital’s $180 million facility for Christmas Tree Shops and White Oak ABL’s $99.5 million loan for an infant product manufacturer serving as case studies [4]. Similarly, regional banks are expanding into sectors like healthcare and logistics, where asset-backed financing provides liquidity for equipment, inventory, and recurring revenue streams [3].

Challenges and Opportunities

Despite the optimism, challenges persist. Rising bankruptcy costs and tighter lending terms, particularly in volatile markets, could dampen growth. However, favorable household balance sheets in the U.S., strong equity positions in housing, and the expansion of data infrastructure are counterbalancing these risks [5]. For investors, the ABL sector offers a diversified income stream through collateralized assets, with private credit managers like Marathon Asset Management raising $1.7 billion for ABL funds targeting healthcare loans and consumer receivables [5].

Conclusion

The ABL sector is poised for sustained growth as regional banks and private credit managers collaborate to unlock liquidity in niche markets. With technological innovation reducing operational barriers and economic volatility driving demand for flexible financing, investors should consider ABL as a strategic asset class. However, due diligence on collateral quality and borrower risk profiles remains critical to navigating this dynamic landscape.

Source:
[1] Asset-Based Lending Market Report 2025-2034 [https://finance.yahoo.com/news/asset-based-lending-market-report-123600857.html]
[2] The growth of asset-based finance in private credit markets [https://www.privatecapitalsolutions.com/insights/the-growth-of-asset-based-finance-in-private-credit-markets]
[3] Asset-Based Lending: Coming of Age in the 2020s? [https://caia.org/blog/2025/06/30/asset-based-lending-coming-age-2020s]
[4] The Convergence of ABL and Private Credit: A New Frontier for Middle Market Liquidity in 2025 [https://www.abfjournal.com/the-convergence-of-abl-and-private-credit-a-new-frontier-for-middle-market-liquidity-in-2025/]
[5] As regional banks avoid risky loans, private lenders see opportunities [https://pitchbook.com/news/articles/marathon-asset-based-lending-regional-banks-mortgage-leases-consumer-loans]