Inside the Fastest-Growing Corner of Private Credit: Asset-Based Finance

Asset-based finance (ABF) is a rapidly growing niche of the highly scrutinized private credit space, with some analysis projecting a 10.2% compound annual growth rate from 2026 to 2035. Alex Knowland and Brenden Gallinek are building out the ABF business at WhiteHorse Capital, and they join the podcast to share their outlook for ABF, digest some recent fraud headlines from the space, and discuss how ABF best works for the middle market and how to strategically deploy it.

This episode is brought to you by WhiteHorse Capital. To learn more about WhiteHorse, visit WhiteHorse.com.

Read a transcript of the podcast below.

Middle Market Growth: Welcome to ACG’s Middle Market Growth Podcast. I’m Carolyn Vallejo. Asset-based finance is a fast-growing corner of the already massive private credit landscape. Alex Knowland and Brenden Gallinek are building out the ABF business within WhiteHorse Capital. They’re here with us today to share more about what’s behind ABF’s rising popularity, reflect on some recent headlines around fraud and more. Alex and Brenden, welcome to the podcast.

Alex Knowland: Great to be here. Thanks for having us.

Brenden Gallinek: Yeah, thank you. Looking forward to it.

MMG: I understand that both of you came to WhiteHorse together about four months ago to build its ABF business. To start us off, Alex, what’s your role, and what drew you to building this from the ground up?

AK: Sure. And, thanks again for having us. So I run originations for the specialty finance business here at WhiteHorse, which in practice means I’m the one, out in the market sourcing opportunities, building relationships with the lending platforms and funds that need capital. I work very closely with Brenden on structuring these transactions and being the point of contact for our borrowers. Brenden and I have actually worked together for years and we came over to WhiteHorse about four months ago to build this strategy from a blank sheet of paper. and honestly, that blank sheet of paper is what drew me here, at least. It’s rare that you get to build something at a firm that already has real institutional infrastructure around it, strong balance sheet, deep LP relationships, the brand, and combine that with a part of the market that’s growing as fast as asset-based finance. Many of us have spent a large portion of our careers in specialty finance and lender finance and we’ve watched it, grow from a more niche asset class to one of the most talked about parts of private credit. to get to build that, to get to build a dedicated platform around that at a place like WhiteHorse with, the resources that it has is, the opportunity that you don’t say no to.

MMG: And Brenden, what about you? Tell us about your role and how your work differs from Alex’s.

BG: Yeah. my focus is really on evaluating and structuring these opportunities. From an underwriting perspective, the work involves rolling up your sleeves and reviewing and assessing collateral trends and servicer history, in addition to coordinating and quarterbacking the various third-party work streams that are critical to any transaction. having a deep understanding of the business and the underlying sector allows us to really craft tailored borrowing bases that provide for competitive advance rates and means we can be a trusted partner to our borrowers no matter the macro backdrop. the nice thing about working with Alex is that his background means he’s adept at determining if a deal just isn’t going to fit our box or if it’s something that we think could be interesting. It’s a collaborative partnership in how we approach each opportunity.

MMG: And just for fun, Brenden, if you had to pick a walk-up song, what would that song be?

BG: this is probably the question I’m going to struggle answering the most today, but, uh, I’m leaning towards “High Hopes”. I love the positive message there.

MMG: Love that. And Alex, what about you?

AK: Again, a tough question, but I’m going to go with the classic hype song you hear at every sporting event in the US, “Thunderstruck” by AC/DC.

MMG: Awesome. I can hear the intro in my head now. All right. Let’s, get into our main topic today. There has been a lot of noise around private credit lately. Brenden, in plain terms, tell me what asset-based finance specifically is and how it’s underwritten.

BG: So I’ll explain asset-based finance first, and then I’ll tackle the underwriting component. unlike traditional direct lending where investors are really looking to enterprise value, EBITDA, and operating cash flows, asset-based finance is really just investing against the pool of receivables that have predictable or contractual cash flow streams or a hard asset that has tangible value. in the former case, examples like auto or personal loans, commercial receivables, in the latter case, something like real estate. From an underwriting perspective, we could easily go down a rabbit hole, but the key points to focus on can really be divided among business, regulatory and legal diligence. On the business side, each deal requires discrete collateral analysis, so you’re typically looking at how assets perform on either a point-in-time or cohort basis and developing a borrowing base or related construct that intends to really measure the value of the pool. We also assess the viability of the servicer and originator, which are often one and the same. There needs to be some entity that is originating these assets and collecting on them to the same standard. And understanding the broader regulatory and compliance landscape and where a company sits within it and its internal policies and track record, are important. And then we obviously need to dot our i’s and cross our t’s to make sure we’re buttoned up from a legal perspective as well.

MMG: Thanks for that overview. And Alex, would you give us your read on the current state of the direct lending market and why now is the right time to build out WhiteHorse’s ABF business?

AK: It’s a great place to start because the two things are really connected. If you look at traditional corporate direct lending right now, it’s honestly a mature and pretty crowded market. You’ve got a lot of capital that was raised, over the last several years, all chasing a limited amount of deal flow. And when that happens, two things give: spreads compress and documentation and structure tends to loosen. lenders start competing on price and terms rather than structure and that’s just where we are in that cycle. asset-based finance is a bit of a different story and that’s the why now. As Brenden mentioned earlier, asset-based finance is lending against the assets of a business rather than its enterprise value. Those assets, in our view, generate cash regardless of what’s happening in the broader corporate credit cycle. it’s fundamentally, and in a lot of ways, just a different, more insulated risk profile. You combine that with the fact that the market is enormous and underserved. The private ABF opportunity currently is measured in the trillions and non-bank lenders like us supply only a fraction of it today. a big reason for that is that the banks have been pulling back since the Great Financial Crisis. They’ll especially finance a platform where there’s a securitization fee attached to it, but, when a really good, scaled platform doesn’t have a near-term ABS exit, it just gets underserved. And that’s exactly the gap that we’re trying to step into. So, you’ve got a massive market, a structural pullback from the traditional providers, banks, and a risk profile that we find really attractive. Put those together and it’s pretty clear why now.

MMG: Absolutely. Brenden, back to you for a second. Can you talk a little bit about structure and maybe walk listeners through the range that you can offer against a given pool or asset base?

BG: as my colleague likes to say, there’s a structure for every deal. I would say almost every deal. The nice thing is that WhiteHorse’s mandate provides us with the flexibility to offer senior secured financing through our competitive unitranche structures with advance rates in the 90% range against a pool of receivables, as well as our ability to partner with banks in a last-out capacity to offer more competitive interest rates to our borrowers, and our ability to stretch into mezz positions or provide forward flow solutions with whole loan or other asset purchases. What’s nice about WhiteHorse is we can play up and down the capital stack.

MMG: Alex, I want to re-contextualize this for our listeners as well. could you provide some insight into asset-based financing and how it can be used strategically in the context of middle market M&A? Tell me about maybe some of the situations or scenarios in which asset-based finance is most appropriate.

AK: Absolutely. And this is a part of the story that people don’t always connect to ABF, but it’s really important. When you think about middle-market M&A, a lot of the targets are businesses that are asset-rich. They’ve got large pools of receivables, loans, leases, or AR on the balance sheet, but they may not have the clean, predictable EBITDA thata traditional cash flow lender wants to underwrite. that’s exactly where an asset-based structure shines because we’re looking to value and the performance of the assets, not just the enterprise. a few scenarios where we think it’s the right tool. First, financing the acquisition of a financial services or specialty finance platform itself. If a sponsor is buying, for example, a consumer lender or an equipment finance business, we can provide a facility against that company’s receivables that funds the deal and then scales as the platform grows. Another situation is a circumstance where the business is growing fast, it needs capital that flexes with its loan origination volume. A traditional term loan is static, but an asset-based facility can grow alongside the loan book. Third, more complex or transitional situations like carve-outs, businesses and a bit of a turnaround, or platforms that are scaled but not yet bank-financeable, where a cash flow lender might not get comfortable. But we can get comfortable because we’re underwriting a diversified pool of assets with real downside protection. the common thread through all this is flexibility, and I’d stress that this isn’t a one-structure business. It’s not just a senior secured first lien loan business. Depending on the situation, as Brenden said, we can do unitranche, first-out, last-out structures, a more junior position, forward flow arrangement, or even purchase assets outright on a one-off, spot basis. the right structure is whatever solves the borrower’s actual problem and having that full toolkit is what makes us relevant across a wide range of M&A situations.

MMG: Yeah, that is a wide range and that flexibility is apparent. there are clearly a lot of scenarios in which ABF would be appropriate. This year though, there have been some big headlines about ABF fraud. There was the $1.9 billion collapse of subprime auto lender Tricolor and First Brands implosion, the founder was charged with defrauding lenders. SoBrenden, let’s turn to you. Can you take us into the details on these situations in plain English? What actually went wrong in these cases and how do you structure against it? Because, quote unquote “don’t get defrauded”, that can’t be the strategy, of course.

BG: you’re right about that. Structural discipline is an important tenet, but before diving into that, the types of fraud in the two cases you referenced share some overlap, but there are some distinguishing features in each of these cases too. Tackling Tricolor first, which unraveled fairly quickly in 2025. the allegation is that this subprime auto platform double pledged collateral to multiple lenders. In plain English, they were promising the same asset, in this case, an auto loan to multiple different parties. And each lender thought that asset was their collateral, but it turns out there was quite a bit of alleged overlap. At First Brands, there’s not only the shared allegation of double pledging, but also the allegation that this platform, which is an auto parts supplier that relied heavily on factoring facilities, was either outright manufacturing fictitious invoices or inflating the value of invoices and diverting cash. So I think many of us have heard the saying that if someone wants to commit fraud, they’re going to find a way to commit fraud. Now, there’s obviously no way to outright say you’re 100% mitigated from that, but there are ways to make it exceptionally hard. And in the case of double pledging, the strongest mitigant is to be the standalone lender for a borrower, which is our preference. no other lender means double pledging isn’t a factor here. Now, in the instances where there’s a deal that we really like with multiple lenders, the best approach is to be coordinated with the other lenders at the outset of the deal. You can secure the right to share information on the underlying collateral with other lenders to ensure there is no double pledging. Alternatively, since borrowers can sometimes be a bit sensitive to information sharing, which isn’t altogether that surprising, you can coordinate field exams, which is just a collateral review, and have a third-party perform the review and sign off that there is no shared collateral. moving to manufacturing invoices, this is where field exams are incredibly important. What’s even more important is the scope of these exams. You can’t just rely on borrower-provided information all the time. For instance, you want your advisor to require that any critical information is verified or provided by the underlying customer or bank as relevant. that really ensures that you can confirm the outstanding amount of a receivable included in a borrowing base or trace the movement of cash flows to verify that every dollar went where you think it did. Even something as simple as completing a public search to confirm on a real estate deal that the mortgage is recorded in the underlying registry is very useful. Now, the last prong, cash diversion, and that’s something that can be protected with adequate controls. securing a blocked DACA where you have both control and visibility over a collections account is the single strongest mitigant to cash diversion. And it also helps with the double pledging risk and the fictitious collateral risk, as viewing these cash flows in the collection account provides for real-time checks in between field exams. I think these collective actions really allow us to tackle the risk of fraud head on.

MMG: All right. Certainly some effective ways to mitigate that risk there. Alex, at the market level, how big of a deal is this and how have cases like these changed the conversation around ABF within the middle market?

AK: Yeah, it’s a fair question and I want to be direct about it because I think there’s a temptation in our industry to wave these things off and I don’t think that’s the right instinct here. These were real failures, real capital was lost and they deserve to be taken seriously. But, the most important point I’d make is that these were failures of verification controls, not failures of the asset class. the underlying cash flows and well-written ABF deals are still performing exactly the way they’re supposed to. And what broke down in these cases that, that Brenden just walked through was, the diligence and the structural protections around the collateral, not the collateral itself. And honestly, at the market level, I tell you the conversation has gotten better because of these situations. When Brenden and I are sitting across from a platform now, the good operators want to talk us through their controls. It’s become a point of pride for them, and on the capital side, our LPs and partners are asking sharper questions than they were, a year ago. For a team like ours that leads with discipline, that’s a tailwind, not a headwind. It actually helps separate the serious lenders, and investors from the ones who are reaching for yield without wanting to do the work. the way I’d sum it up is the fundraising and the excitement around ABF over the last few years brought a lot of new entrants and a lot of new capital into the space very quickly. And these episodes were in part a symptom of a market that grew faster than some people’s controls did. So, it’s a real wake-up call, but for those of us who’ve been doing this a long time and who look to build the blocking and tackling into every deal, it’s actually reinforced why that discipline matters. It’s raised the bar for everyone and, we think it’s healthy.

MMG: Yeah, absolutely. That makes sense. Another topic, another trend that has been dominating the headlines in this space is an influx of insurance capital pouring into ABF and a shifting relationship with banks here. Does more capital chasing the space worry you when it comes to that discipline? Alex, I want to turn to you first here.

AK: both of those are huge forces, so let me take them one at a time. On the insurance side, there’s an enormous pool of long-duration, investment-grade-oriented capital looking for exactly the stable, predictable asset-backed cash flows that we originate. It’s really a natural fit. The duration and risk profile of ABF assets line up very well with the insurance, insurers need to match against their liabilities. And when that capital layers on top of a fund strategy like ours, it lets us scale, unlock larger deals, and be a full cycle partner to our borrowers rather than just doing one deal and moving on. On the banks, with the relationship side, as you mentioned, that relationship is genuinely shifting. I describe it as moving from competitor to partner in a lot of cases, post-financial crisis, and then again with the regulatory capital pressures, over the last couple of years, banks have pulled back, from directing, directly financing a lot of these specialty finance platforms, but they still want exposure in a safer form. what you see increasingly is banks providing a senior, more conservative line and lenders like us coming in at a more stretched advance rate, taking, the risk piece that the bank does not want. what you’ve really seen is the evolution of a trade that’s, less bank versus non-bank and more senior plus mezzanine or first-out, plus last-out sort of ecosystem where everybody’s playing to their strengths. that’s a big part of why being able to operate across the whole capital stack matters. It makes us relevant no matter where the banks want to sit. Now, onto your real question, does more capital chasing the space worry me on discipline? Short answer is yes. And I think it should worry anyone who’s honest about it. Whenever a lot of capital floods into an asset class quickly, standards can slip. That’s a classic late-cycle risk. And frankly, it’s part of what we just talked about with the fraud cases. But my answer is that, our discipline has to be a constant, not something that we dial up and down based on, how competitive the market is. we hold our structures and, advance rates, um, regardless of who else is bidding. And, if a deal only pencils because we have to give, on structure, then, that’s probably not a deal we should win. we’re happy to lose those deals. I’d rather grow at the speed of our diligence and discipline rather than win business that we’ll regret in a downturn. Mm-hmm.

MMG: Right. Brenden, do you have anything to add there about some of these additional trends shaping the ABF space?

BG: Yeah. I’d like to emphasize what Alex said there at the end. And I think when people worry about capital inflows, the first thing that comes to mind is obviously spread and seeing how that compresses. From where I sit, I’d watch structure instead. It’s not just advance rates that may increase a bit, right? It’s also eligibility criteria could loosen, you could get reduced frequency of reporting, or honestly, covenants could trip after there’s already real risk of impairment. And so, but at WhiteHorse, as Alex said, we’re really only going to do a deal if it makes sense from a structural perspective.

MMG: All right. And last question for you both. So I’d like each of you to weigh in here. You’re now, let’s say, four months into building this within WhiteHorse, as we’re speaking today. What is one thing that you will be watching over the next, let’s say, six to 12 months, whether that’s where capital is flowing, how bank and insurance players have evolved here in the space or where the next opportunity is. Brenden, why don’t you kick us off there? What will you be watching?

BG: Expanding a bit on my last point, given where I sit, I come at this with an underwriter’s mindset, right? given the widespread examples of fraud, lenders have tightened up. Whether that actually sticks is really yet to be seen. As capital continues to flow into this space, it’ll be interesting to see how certain lenders respond to these competitive pressures. When this noise is gone from the headlines and LPs aren’t asking as many questions as frequently, will certain folks really return to bad habits? And this is something that I’m going to keep my eye out for.

MMG: Alex, can you close this out here? what about you?

AK: Yeah, for me, it’s really the platforms that got orphaned when some of the traditional lenders, pulled back from the space in recent years. And there are some genuinely good businesses out there right now, scaled, well-run, real track records that are looking for the right capital partner because their old source of financing has either stepped away or been less flexible with them. how that shakes out over the next year or so is going to define the space for a while. And candidly, that’s the whole reason we’re building this business at WhiteHorse right now. We intend to be one of those first calls those platforms make. And so, that’s what I’m watching and, more than watching, it’s what we’re building toward every day.

MMG: Excellent. All right. Well, that was WhiteHorse Capital’s Alex Knowland and Brenden Gallinek. Thank you both so much for joining us. It’s been a pleasure.

BG: Thank you, Carolyn. Really appreciate it.

AK: Thanks for having us.

Note: This podcast includes forward-looking statements based on certain assumptions. The views expressed reflect the speakers’ opinions as of the date of the podcast and are subject to change. These statements involve risks and uncertainties; actual results may differ materially. Nothing in this presentation should be considered investment advice.

This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

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