Financing companies, financing their assets: two different approaches

Financing companies means several different things: providing additional current liquidity, financing investments, supporting working capital. Each of these operations can be carried out through a range of specific technical solutions, but a fundamental watershed is the one dividing operations that increase net debt, and are therefore based on the assessment of the company’s repayment capacity, from those that have predetermined assets and/or cash flows as their underlying basis and disregard – to a greater or lesser extent – this repayment capacity.

The distinction is less obvious than it may appear at first sight and is fundamental in order to correctly interpret operational reality.

It is not an obvious distinction because the logical separation does not reflect an operational separation: many operations theoretically falling within the scope of asset-based lending (factoring, stock financing, inventory finance) are in reality based on an assessment of the customer’s default risk and repayment capacity, despite being structured as ABL financings.

This (long) methodological premise is important in order to frame the umpteenth periodic return of attention towards inventory financing operations. Article 8 of Law no. 34/2026 extended the existing rules on the segregation of securitised assets also to physical goods held in inventory, thus making it possible to structure financing or securitisation transactions with physical assets as the underlying assets. The legislative amendment has (once again) rekindled rhetorical and political enthusiasm: it finally becomes possible to use inventory as well to facilitate financing for the mythical Italian SMEs! A film already seen a few years ago with the introduction of the non-possessory pledge instrument, which should also have made it possible to mobilise these physical assets, for the benefit of financing the usual SMEs.

The aim of this article is to clarify what it means to carry out a truly asset-based financing operation and what its assumptions and consequences are on the company’s financial statements, regardless of the legislative innovations emerging from time to time, which may affect the instruments used but do not alter the substance of the operations or the configuration of the underlying risks. In this context, we will limit ourselves to discussing physical assets, without addressing the issue of intangible assets (brands, patents, etc.), which may also potentially be subject to financing transactions.

Financing a company means providing it with additional financial resources, against a repayment plan. Financing an asset means providing financing whose size is correlated to the value of the asset (taking into account the risk of value reduction, the actual possibility of freely selling it on the market, and the possibility of effectively separating it from the assets of the client company). In the first case, the company records a liability on the liabilities side and increases cash on the assets side. In the second case, we have two alternative representation options, deriving from the structure chosen to carry out the transaction and from the type of underlying asset.

The choice between the two solutions is largely determined by the nature of the asset. If we are talking about physical assets in a manufacturing context, for example, we may be dealing with inventories of raw materials, semi-finished goods or finished products. Raw materials may have an open market, alternative to their use in the production processes of the client company, and therefore constitute an asset that can actually be separated from the client’s sphere, even though in most cases the client itself will be the main source of repayment. Stocks of semi-finished goods, on the other hand, are generally lacking in autonomy and difficult to separate from the client, as they are intended to feed its production processes. Finally, finished product inventories are those most easily usable for structuring deconsolidating financing transactions, depending on the specific nature of the individual assets.

The difference between the two classes of transactions is important both from the perspective of assessment criteria and from the perspective of the practical effects for the client company. We summarise them in the following table.

The above are the general rules for any ABL financing transaction, based on the nature of the underlying risks and valid regardless of the legal rules in force from time to time, which govern the technical instruments used to implement them.

ABL financing and Italian SMEs

Italian SMEs are characterised by a balance sheet structure that is on average more fragile compared with their European counterparts, with generally more significant working capital items, a consequent greater vulnerability in terms of liquidity profiles, and a dependence on short-term financial sources.

From this point of view, it is easy to understand the emphasis accompanying any initiative capable of improving their ability to monetise balance sheet assets, mainly consisting of trade receivables and inventory.

The emphasis is justified, but expectations must be measured against concrete contexts, which also depend on the quality of companies’ operational and administrative processes and their accounting reporting.

If we want balance sheet assets to be financeable, they must first of all be recorded and measured accurately, their movements must also be recorded accurately and promptly, and constantly updated and granular information must be available on flows and balances. Outside these assumptions, it is simply not even possible to begin talking about asset-based financing, and one must limit oneself to accessing credit deriving from the company’s repayment capacity.

An inventory item that is “treated” as a balancing entry in the financial statements is not eligible for financing.

This represents a substantial limitation compared with the emphasis accompanying any legislative initiative, however meritorious.

In operational reality, the legislative instruments periodically promoted as a “solution for SMEs” are destined to be used by large companies that do not have creditworthiness problems, but which can use them to structure solutions that do not increase their indebtedness.

So, is there no hope for SMEs? Let us say that in this case the problem is not the financing instruments, but corporate culture, which must evolve from the paradigm of entrepreneurial initiative based on productive or commercial genius in order to include a significant degree of awareness of measurement and process tools, to understand the importance of a reliable and autonomous accounting and financial structure (not the accountant who does what the owner tells him, but an officer responsible for the correct measurement of phenomena and financial planning), which can represent the further pillar necessary to ensure business stability and sustainability over time.

The cultural problem of companies unfortunately also intersects with the current limitations of the supply of corporate credit, paralysed by a modest propensity for risk-taking and by the inability to differentiate the approach between corporate lending transactions and asset-based operations. In both cases, the first filter is the counterparty rating, moreover applied according to a traffic-light logic rather than as a driver for pricing modulation.

The limitations of supply derive from many factors. I list some of them, without any claim to completeness or originality.

The processes of banking concentration have created larger banks, perhaps more efficient ones, but equipped with a risk governance structure (credit risk, compliance risk, etc.) that is generally flat. The integration of specialised business components has almost always resulted in the loss of operational differentiation and, ultimately, of expertise and autonomy, in favour of increasingly centralised and standardised decision-making and control processes.

Responsibility for this evolution stems from the peculiar situation of the banking system, which combines a modest level of exposure to competitive risks with a high degree of dependence on banking supervisory policies. Competition is low because the market is protected and all players have as their primary operational driver compliance with prudential requirements and with all the numerous and increasingly granular layers of sector-specific regulation.

That this is a problem is recognised even by the European Commission in its recent communication Competitiveness of the Banking Sector and the Single Market in Banking (17.7.2026), in which it outlines a programme of measures aimed at improving competitiveness, for the benefit of financing European companies.