Financial advice
Alternative funding
In these challenging economic times, business owners should consider Asset Based Lending as an alternative method of funding, says Peter Ewen
One of the great entrepreneurial truths is that the odds of finding an angel investor or raising first-round venture capital are about the same as getting struck by lightning whilst standing on the bottom of a swimming pool on a sunny day.
Moreover, the current recessive conditions have forced the high street banks to tighten overdraft limits and loan criteria. While the usual routes to business finance are undoubtedly harder at the moment, there are alternatives.
Sometimes the key to unlocking funds lies in a business' assets. One of the fastest growing areas of business finance is Asset Based Lending (ABL).
ABL generates finance against a company's existing assets, be that stock, plant and machinery or property and sometimes even less tangible elements such as intellectual property or brands. Funding can be used to support defining business transitions such as expansion, takeovers, MBI, MBOs or other activites that require funding. In contrast to off-the-shelf financial services, the best ABL packages are tailored to the individual needs of the business.
Top five benefits of ABL
1. Repayments are an ever-present issue with a traditional loan or investment structure and there is little scope for securing additional finance through the same arrangement. In contrast, an ABL facility actually grows with the business, providing the much-needed headroom to focus on real business issues.
2. ABL is a particularly attractive acquisition funding option because it allows a management team to retain control post-deal, without having to surrender some of the business to a venture capitalist or private equity house. ABL is much less intrusive, since it releases the value of the business' assets to create the funding.
3. Unlike other forms of finance, the advantages of ABL don't just extend to facilitating the original deal. In fact, this form of finance really comes into its own post-acquisition. Provided on a revolving basis via receivables and stock the facility can continue to flex in line with company sales. This reduces the strain on a company's cash flow during the often-difficult post-deal phase.
4. The best asset-based lenders build lasting relationships with clients and act as trusted advisors for the management team during an acquisition or a similarly trying period. With a strong relationship and understanding of the client's business in place, an asset-based lender can often coach and guide a client through the woods by anticipating common pitfalls and offering creative solutions.
5. A business experiencing cash flow problems may find an asset-based loan very attractive when considering available options for greater leverage to finance business re-structuring. ABL offers flexible funding, to provide a business with sufficient liquidity to execute restructuring plans. Cash is king and, in difficult times, a steady stream of working capital can make the difference between whether a company will sink or swim.
Peter Ewen is managing director of independent invoice and asset-based lender Venture Finance.
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