Finance industry news
Could Asset Based Lending be the right choice for your company?
Tuesday 22nd August 2017
There is no doubt that asset-based lending (ABL) has evolved into a more widely used debt product, with more companies in the UK turning to ABL to support their working capital needs and overall growth. In fact, many companies that would qualify for traditional bank financing may prefer ABL based on a number of factors:
Flexibility - ABL provides flexibility as it traditionally carries fewer financial covenants, therefore supports businesses throughout changing economic cycles.
Improved Liquidity - It can support business growth with increased availability as asset values rise and help smooth out tight cash-flow periods or seasonal spikes.
Strong Relationship - The nature of the relationship engenders a close and open connection between borrower and lender. This gives the lender a strong understanding of the business and its sector, which can help the lender remain comfortable through periods of transition.
Creditworthiness - Eligibility for an ABL structure can often be greater, with less emphasis on historic financial performance.
Structure - An ABL structure involves a revolving funding rather than a fixed amortised term loan. This can help provide both overall flexibility and greater credit availability during seasonal cycles.
Complementary - ABL can work alongside a second lien or junior lender to provide an enhanced capital structure and offer a compelling alternative to traditional cash-flow lenders.
Price - ABL can deliver economic benefits to borrowers given the collateralised nature of funding.
Speed of decision - Businesses that meet the qualification criteria can often obtain an ABL facility fairly quickly. Assuming the business is profitable and has reasonable financial controls, the application and underwriting process can be less onerous than traditional facilities.
Covenants - As ABL facilities are in the very nature secured against the companies' assets, the requirement to control and monitor the business via financial covenants remains minimal.
So, while ABL is on the rise in the UK, opportunity still exists to help companies of varying sizes understand the benefits of ABL and how it is a flexible option that can be used to support both short-term working capital needs and long-term goals.
Source Insider Media.com
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