Asset-Based Lending in Vietnam: Inventory ABL Guide

Asset-based lending is gaining ground among Vietnamese manufacturers and traders whose balance sheets are rich in stock and receivables but whose real estate is already pledged. Instead of relying on a land-use right or a guarantee, asset-based lending ties the credit line to a formula that moves with the value of inventory and accounts receivable.

For the borrower it unlocks working capital; for the lender it replaces blind trust with data, control and an enforceable claim. This guide explains how to structure, perfect and monitor inventory-based facilities under the Civil Code 2015, Decree 21/2021/ND-CP and the Law on Bankruptcy 2014.

Contents

• What Asset-Based Lending Means in the Vietnamese Market
• Designing the Borrowing Base Over Inventory and Receivables
• Building the Collateral Package Under the Civil Code 2015
• Perfection of Security and Registration
• Field Audits and Collateral Monitoring
• Dominion of Funds and Blocked Accounts
• Valuation Haircuts and NOLV
• Insolvency Treatment Under the Law on Bankruptcy 2014
• Structuring Checklist for Lenders and Borrowers
• Frequently Asked Questions

What Asset-Based Lending Means in the Vietnamese Market

In international markets, asset-based lending is a revolving or term credit facility whose availability is capped by a borrowing base: an agreed percentage of eligible receivables plus an agreed percentage of eligible inventory. Vietnamese banks have long made inventory-secured working-capital loans, but they have usually treated the stock as a static pledge valued once at drawdown. A true asset-based lending structure is dynamic. Availability is recalculated frequently, collateral is inspected independently, and cash collections are routed to the lender.

Asset-based lending suits three borrower groups: exporters of garments, footwear, furniture and seafood that carry large finished-goods stock; domestic distributors and traders with fast-turning goods and trade receivables; and manufacturers in industrial parks whose land is leased and therefore of limited collateral value. For these companies, asset-based lending can deliver larger limits than a conventional loan secured on fixed assets, and inventory financing of this kind works provided the lender can prove title, priority and control.

Asset-Based Lending Versus Conventional Working-Capital Loans

The practical differences are best seen side by side.

Feature	Conventional working-capital loan	Asset-based lending facility
Credit limit driver	Fixed percentage of an appraised collateral value, often real estate	Borrowing base recalculated on eligible inventory and receivables
Collateral valuation	Periodic revaluation, often annual	Regular certificates, plus field audits and appraisals
Cash control	Borrower freely uses its accounts	Collections swept to blocked accounts; dominion of funds on default
Covenants	Financial ratios, use-of-proceeds	Reporting of aging, stock and sales; eligibility criteria
Pricing	Interest margin	Interest margin plus monitoring and audit fees
Insolvency exposure	Secured portion depends on appraised value	Secured portion depends on perfected rights over a moving pool

Vietnam has no separate law on asset-based lending. The structure is assembled from the general lending rules for credit institutions, the Civil Code 2015 on secured obligations, and Decree 21/2021/ND-CP on secured transactions. Credit institutions must also follow State Bank of Vietnam Circular 39/2016/TT-NHNN as amended and the Law on Credit Institutions 2024.

Designing the Borrowing Base Over Inventory and Receivables

The borrowing base is the heart of any asset-based lending facility. It is calculated as the advance rate multiplied by eligible collateral, less reserves. A simplified formula reads: 85% of eligible receivables plus 50% of the net orderly liquidation value of eligible inventory, less rent, tax and priority-claim reserves. The facility limit is the lower of the commitment and the borrowing base. If the base shrinks, the borrower must repay the overadvance, usually within a few business days.

Eligible and Ineligible Receivables

Receivables qualify only if they are real, undisputed and collectible. Typical exclusions are invoices more than 90 days old, receivables owed by affiliates or subject to set-off, and concentrations above an agreed limit with one buyer. In Vietnam, lenders should require that each receivable be supported by a valid e-invoice under Decree 123/2020/ND-CP and by delivery evidence, because the invoice record is the most credible audit trail.

Eligible Inventory Categories

Raw materials, work in process and finished goods are typically treated differently. Finished goods of standard, resalable specification receive the highest advance rate. Work in process receives little or none, because its liquidation value is poor. Excluded categories include goods on consignment, goods in transit without documents of title, goods under customs supervision or bonded status, obsolete or damaged stock, and goods subject to a supplier’s retention of title.

Under Articles 331 to 333 of the Civil Code 2015, a seller may retain ownership until the price is paid, and a registered retention of title can defeat the lender’s claim over that stock.

Building the Collateral Package Under the Civil Code 2015

For asset-based lending, Article 295 of the Civil Code 2015 allows property that will be formed in the future to secure an obligation, which is the statutory foundation for a floating inventory pool. A well-drafted asset-based lending package normally combines several security instruments, each tailored to the asset it covers.

Mortgage or Pledge of Movable Assets

Inventory that stays in the borrower’s factory or warehouse is generally mortgaged (Article 317), because the borrower must keep selling it. A pledge (Article 309) requires transfer of possession to the lender or a third party, which is workable only for stock held in a controlled warehouse.

The security agreement should describe the secured pool by category, location and type, include goods produced or acquired after signing, and state that proceeds of sale and insurance indemnities form part of the security. Decree 21/2021/ND-CP also addresses goods in circulation in production and business, which are the assets that rotate in this kind of structure.

Security Over Receivables and Proceeds

Receivables are secured by a pledge of rights to payment or by a security assignment structured to fit Vietnamese law. The pledge should cover present and future receivables under identified sale contracts, and the borrower should undertake to notify account debtors where required. Because sale proceeds turn inventory into receivables and then into cash, the security package must follow the asset through that cycle. This is why, in asset-based lending, deposit-account security and cash control, discussed below, are inseparable from the inventory and receivables security.

Perfection of Security and Registration

In asset-based lending, a security interest that is not perfected may be valid between lender and borrower but weak against third parties. Articles 297 and 298 of the Civil Code 2015 provide that a security measure has effect against third parties from the moment it is perfected, which is by registration, by possession of the secured asset, or in other cases provided by law. Article 308 then governs ranking: in general, secured parties are paid in the order in which their security was perfected.

Registration With the National Registry of Secured Transactions

For movable assets other than those subject to special registries such as aircraft, vessels and motor vehicles, registration is made with the National Registry of Secured Transactions under the Ministry of Justice. The procedure is governed by Decree 99/2022/ND-CP and can be completed online. Priority generally runs from the time the registration is recorded in the system, so lenders should register before first drawdown, not after.

Registration is also the lender’s search tool: a pre-signing search of the registry reveals prior encumbrances over the borrower’s stock and receivables, and a search against affiliates and suppliers may surface retention-of-title claims. Asset-based lending lenders can use the official portal at the National Registry of Secured Transactions for searches and filings.

Future-Formed Inventory and Floating Pools

The principal question in asset-based lending is how a single registration can cover goods that do not yet exist. Under Article 295 and Decree 21/2021/ND-CP, the security agreement may cover property to be formed in the future, and registration may describe the collateral by category rather than by serial number. The assets are then caught automatically as the borrower acquires rights in them, without a new agreement.

Drafting discipline matters: a vague description such as “all assets of the borrower” is likely to be challenged, whereas a description that identifies product lines, storage locations and rotating character is easier to defend.

Priority Conflicts: Suppliers, Lessors and Possessory Liens

Several parties can compete with the lender. Suppliers with registered retention of title, earlier registered secured creditors, and warehouse keepers or carriers exercising a right of retention under Articles 346 to 350 of the Civil Code 2015 may all rank ahead for particular stock. Mitigants include warehouse lien waivers, landlord waivers, borrowing base reserves for known priority claims and a negative pledge.

Field Audits and Collateral Monitoring

A borrowing base is only as reliable as the data behind it. Field audits and ongoing monitoring distinguish asset-based lending from ordinary working-capital credit.

What a Field Audit Covers

In asset-based lending, a field audit is an independent examination, normally by an audit firm or specialist collateral monitor, of the borrower’s books, controls and physical stock. It tests whether receivables exist and are correctly aged, reconciles the general ledger to the perpetual inventory system, verifies the stock count, reviews dilution from returns and credit notes, and checks that invoices, delivery notes and customs records agree.

Lenders usually audit before closing and then annually or semi-annually. A separate inventory appraisal by an independent valuer supports the net orderly liquidation value used in the borrowing base.

Reporting Covenants and Early Warning Signals

An asset-based lending agreement should require a borrowing base certificate, signed by a senior officer, weekly or monthly, with receivable aging, inventory by category and location, and a roll-forward showing sales, collections and credit notes. Warning signals include rising dilution, stretched aging and unexplained gaps between sales and cash collected. The agreement should give the lender and its auditors access to premises and systems, and make misreporting an immediate event of default.

Dominion of Funds and Blocked Accounts

In asset-based lending, security over inventory is hollow if the sale proceeds disappear. Dominion of funds addresses this by giving the lender control over cash collections.

Blocked Account Structures

The standard design requires account debtors to pay into a collection account held with the lender, or into an account pledged to the lender over which the borrower cannot withdraw without consent. Daily or periodic sweeps apply collected cash against the outstanding loan, and the borrower redraws against the borrowing base.

Vietnamese law permits security over rights in bank accounts, and account control agreements or blocking arrangements with the account bank make that security effective in practice. Where the borrower banks elsewhere, the lender should restrict other accounts or require tri-party agreements.

Springing Versus Full Dominion

Asset-based lending lenders choose between two models. Under full dominion, all collections are applied to the loan from the start. Under springing dominion, the borrower may use collections until a trigger such as an event of default or availability falling below a threshold. Full dominion is stronger but more intrusive. Springing dominion suits stronger credits but depends on the legal ability to switch control without delay, so the account documentation should authorise the lender to issue a blocking notice unilaterally.

Valuation Haircuts and NOLV

In asset-based lending, lenders do not advance against book value. They advance against what the stock would fetch if sold in an orderly process by a liquidator under pressure. The measure is net orderly liquidation value, usually abbreviated NOLV: the estimated gross proceeds of an orderly sale over a defined period, less the costs of liquidation such as sales commissions, storage, transport, insurance and legal fees.

The advance rate is then applied to NOLV, often at 80 to 90 percent of NOLV for inventory, which in turn may equal only 30 to 70 percent of cost depending on the goods. Standard, easily sold goods sit at the high end; customised, perishable or seasonal stock sits at the low end. These percentages are market practice, not legal requirements. Because selling stock through courts is slow, a conservative haircut and an out-of-court realisation mechanism matter.

Insolvency Treatment Under the Law on Bankruptcy 2014

Every asset-based lending structure is ultimately tested in insolvency. Under the Law on Bankruptcy 2014, a secured creditor is entitled to be paid from the secured asset ahead of unsecured creditors, but only up to the value of that asset; the shortfall is treated as an unsecured claim. Article 54 sets the distribution order for the remaining estate, placing bankruptcy costs, employee wages and social insurance, and certain other claims ahead of ordinary unsecured debt.

Enforcement of collateral may also be restricted once proceedings open, lengthening recovery.

Three risks to asset-based lending deserve emphasis. First, Article 59 allows the court to declare certain transactions invalid if made within six months before the petition is accepted, including the conversion of unsecured debt into secured debt and certain below-market transfers. A lender who takes fresh security for an old exposure shortly before distress risks losing it. Second, unperfected security may be ineffective against other creditors, so registration gaps are costly.

Third, collateral that has been sold and replaced during the facility is traceable only if proceeds were captured in blocked accounts and the security agreement covers them.

These points are why many lenders involve restructuring counsel early. A distressed asset-based lending borrower may be better served by a negotiated workout with a standstill and an agreed liquidation of stock than by a court-led process. Our team can assist on both sides through our restructuring and insolvency practice.

Structuring Checklist for Lenders and Borrowers

The following sequence helps both parties to close an asset-based lending facility that will perform under stress.

• Run registry searches on the borrower, affiliates and key suppliers before term sheet signing.
• Commission an initial field audit and inventory appraisal to establish NOLV and eligibility criteria.
• Draft security agreements describing present and future inventory, receivables and proceeds with precision.
• Register with the registry before first drawdown and diarise amendments for changes of location or product line.
• Put blocked-account and tri-party arrangements in place with every bank that holds borrower collections.
• Agree reporting calendars, audit rights, overadvance cure periods and reserves in the facility agreement.

Our banking and finance team structures and documents asset-based lending facilities for domestic and foreign lenders and borrowers.

Frequently Asked Questions

Can asset-based lending cover inventory not yet produced?

Yes. In asset-based lending, Article 295 of the Civil Code 2015 permits future-formed property as collateral. The agreement should describe the goods by category and location so they are captured automatically once the borrower acquires rights in them.

Is registration mandatory in asset-based lending?

Registration is not always a condition of validity, but it is the usual way to perfect security against third parties and to secure priority. Lenders should treat registration with the registry as essential, and file before first drawdown.

How often should a lender conduct field audits?

Market practice is an initial audit before closing, then annually or semi-annually, and more often if performance weakens. Frequency is contractual, not statutory, so it should be negotiated and tied to availability or default triggers.

Does a blocked account give priority in bankruptcy?

It improves control and traceability but does not itself override the Law on Bankruptcy 2014. Perfected security and clean documentation remain decisive, and transactions within six months before a petition may be challenged.

Can foreign lenders offer asset-based lending directly?

Possibly, but licensing, foreign-loan registration and foreign exchange rules apply, and many foreign lenders work through onshore banks or fronted structures. Obtain local advice before committing to a cross-border structure.

Your next step is simple: list the inventory, receivables and bank accounts you propose to put into your asset-based lending facility, and ask your counsel to run registry searches on each before any term sheet is signed. For independent reference, the national legal database at vbpl.vn publishes the current text of the Civil Code 2015 and implementing decrees.

Disclaimer: This article provides general information only and is not legal, tax or financial advice. Laws and regulations change, and you should obtain advice on your specific circumstances before acting.