Asset Based Lending
Asset-based lending provides the cash injection needed to implement specific growth plans support acquisitions
Leveraging balance sheet assets to secure funding provides organisations with fast access to working capital, or lump sums with which to implement plans for growth. The collateral provided for this type of lending tends to be inventory, invoices, or fixed assets such as plant and machinery.
Risks are reduced for the lender due to the loan being secured against an asset. As far as the company is concerned, releasing the cash tied up in their asset allows plans to be made with confidence.
Releasing the capital tied up within inventory, regardless of the stage of production, provides working capital needed for expansion, acquisitions, management buy-outs or management buy-ins.
The level of funding available will depend on the type of stock being offered, but provides an ongoing borrowing facility that tracks the natural progression of sales.
Invoice factoring and discounting offers a borrowing facility based on the value of outstanding invoices. As sales increase, so does the amount available for borrowing, enabling further growth on a continuous basis. A factoring company purchases the sales ledger, and generally provides around 80% of the total amount outstanding. Once the invoices have been settled in full, the remaining proportion is paid, minus the factor’s fees.
Discounting works in a similar way, but the organisation retains control of the sales ledger and customers remain unaware that the company is being funded in this way.
Fixed assets fully-owned by the business can be used to obtain funding for growth, or to provide greater operational cash flows. Assets commonly used in this way include vehicles, plant and machinery.
A fixed rate of interest is applied at the outset, allowing businesses to budget reliably.
Asset-based lending, in general, is beneficial when rapid growth uses up too much working capital or to help find fixed asset purchases. It is perceived as low risk by lenders, and provides the cash injection needed to restructure, carry out acquisitions or implement specific growth plans.