30 May 2016 | 03.14 pm
Asset Based Lending A Flexible Boon For SMEs
Ideal for companies seeking to expand, restructure or refinance
30 May 2016 | 03.14 pm
“Asset-based lending is a fresh funding avenue for Irish businesses. It can provide access to a highly flexible and sustainable type of funding to support longer-term growth objectives,” writes Paul Stephens FCA, Dip Tax, Dip Corp Fin, Head of New Business (pictured)
The past eight years have been economically challenging, and while almost half (49%) of Irish business owners are now expressing optimism about the current economic landscape*, we are still in a period of global uncertainty and change.
In addition, over half (55%) of SMEs are still experiencing a lack of access to traditional business funding* and, as a result, interest in alternative types of funding, such as asset finance and invoice finance has been growing in recent years.
However, there is another form of alternative finance which has become increasingly popular in the UK but which is still relatively unknown in Ireland – asset based lending (ABL).
What Is Asset Based Lending?
Asset based lending is a form of secured funding where cash is advanced based on the value of the borrower’s assets. In the last quarter of 2015, funding through asset based lending facilities exceeded £3.5 billion in the UK and the number of businesses using it increased by over 30% year on year**. It is also widely used in the US and throughout other parts of Europe.
Asset based lending essentially enables a business to raise a large quantum of working capital by using assets typically found on the balance sheet, such as receivables, inventory, property and plant and machinery. An asset based lending transaction will usually be structured using a combination of assets, rather than funding against one asset class alone, often with the core element being receivables in the form of invoice finance.
Strategic Working Capital
Generally asset based lending is used by businesses to expand, restructure or refinance. As it releases relatively large sums of working capital – typically between €2.8 million (£2 million) and €49m (£35 million) – it is ideal for funding strategic events, such as MBOs/MBIs, mergers and acquisitions. Alternatively, it can be used to provide a contingency to support cash flow as and when required.
Asset based lending is designed to track the growth of a company; as turnover and the asset base grows, the availability of funding automatically follows – freeing up time for senior management to focus on growing the business. In addition, it is usually highly competitive when compared with other forms of business finance.
This is largely due to the credit risk being lower than more traditional types of finance, as lending will be against a company’s most liquid assets that have a readily identifiable value. As a result, in the wake of the financial crisis and subsequent new regulations and lending standards, UK and European banks are increasingly moving towards offering asset based finance.
Flexible And Sustainable Funding
In summary, asset based lending can provide businesses with access to a highly flexible and sustainable type of funding which can be used to facilitate a specific strategic purpose, support longer-term growth objectives or simply to future-proof against changes to the economic landscape.
It can, therefore, be a smart option for asset-rich businesses looking to realise corporate growth objectives, remain responsive to change and stay ahead of the competition.
About Close Brothers
Close Brothers Commercial Finance is part of Close Brothers Group plc, a leading UK merchant banking group. Close Brothers Commercial Finance offers the flexibility of an independent provider combined with the financial strength of a FTSE 250 company. Its specialist team operates throughout Ireland with offices in Belfast, Dublin, Cork and Galway, and have extensive experience of working across a wide range of sectors.
To find out more, please visit: www.closecommercialfinance.ie/asset-based-lending
* Close Brothers Commercial Finance Business Barometer survey. The survey canvasses the opinion of 900 SME owners and business managers from several industries across the UK and Ireland on a range of issues affecting their businesses.
** Asset Based Finance Association (ABFA) 2015 Q4 statistics