Which metrics are typically adjusted to reflect seasonal inventory swings in asset-based lending?

• A. Interest rate and tenor.
• B. LTV and DSCR.
• C. Credit rating only.
• D. Number of employees.

Answer: (B)

Seasonal swings in inventory affect the collateral value and the cushion available to service debt in asset-based lending. Because inventory serves as collateral and its value can rise and fall with seasons, lenders adjust leverage and coverage measures to reflect this variability. The two metrics typically adjusted are loan-to-value and debt service coverage ratio. When inventory is high, collateral value increases, allowing a larger loan relative to collateral while maintaining a healthy DSCR. In off-peak periods, inventory value drops, which can tighten DSCR and/or require a smaller loan relative to collateral or additional collateral. This focus on LTV and DSCR directly ties the loan amount to collateral value and the ability to cover debt payments, whereas other factors like interest rate, tenor, credit rating, or headcount don’t specifically capture seasonal inventory fluctuations.