Which factor is NOT typically a key risk factor in asset-based lending?

• A. Debtor concentration
• B. Market share of the bank in the local region
• C. Collateral valuation accuracy
• D. Liquidity of collateral

Answer: (B)

In asset-based lending, the main concern is the quality and recoverability of the collateral and the borrower’s ability to support the loan through collections. The bank’s market share in the local region doesn’t directly affect the collateral’s value or the likelihood of recovering funds, so it isn’t a typical risk factor for an ABL facility.

Debtor concentration matters because if a large portion of the collateral or receivables come from a few customers, a failure by those customers can sharply reduce recoveries. Collateral valuation accuracy is critical because over- or undervaluing the collateral can lead to inappropriate loan sizing and higher loss severity if liquidation becomes necessary. Liquidity of collateral is also key since assets that are hard to sell quickly can delay or reduce cash recoveries in a default.

So, the factor that isn’t typically a key risk factor in asset-based lending is the bank’s local market share.