How asset based lending can impact your business

Greater value

Asset based lending typically provides significantly higher levels of working capital than conventional methods of funding, such as bank loans and overdrafts. It is especially useful in event-driven scenarios, such as acquisitions and MBOs (Management Buy Outs), where increased headroom is needed to support the purchase consideration and to fund future growth.

Speed of delivery

Since ABL generates finance based on the value of a company’s combined assets, including stock, debtors, plant, machinery, and property, decision-making can often be faster than conventional funding methods following the initial due diligence process. ABL is a desirable option for M&A(mergers & acquisitions) transactions due to its ability to be provided quickly to meet the tight timeframes that these deals demand, allowing for speedy completion.

More flexibility

Since an asset based loan has receivables (debtors) at its core, it provides a revolving line of credit that increases in proportion to the sales of a business rather than a fixed overdraft or term loan.

Covenant-light funding

With ABL, there are far fewer financial covenants required of the business, providing greater flexibility and leeway than the tight covenants commonly associated with traditional bank lending. Conventional loans often come with strict restrictions around adherence to financial ratios such as minimum working capital, minimum tangible net worth, maximum debt to equity, and minimum interest coverage. Seasonal or cyclical businesses or those suffering a temporary adverse event can suddenly find such covenants restrictive, resulting in an increased potential to trigger a default.

Competitive pricing

While pricing will naturally vary from deal to deal, ABL is highly competitive, particularly because it can often generate a higher amount of funding than traditional bank facilities will allow, providing significantly greater value against the same levels of security.

Depth of understanding

Independent asset based lenders generally have close working relationships, better visibility of receivables/collateral, and a lower client-to-account manager ratio, giving them a real-time understanding of the business needs. As such, it is possible to have more proactive conversations in support of a client’s funding requirements, enabling issues to be addressed quickly in support of the future growth of the business.

Improved certainty

Asset based lending is a form of financing that utilises the assets of a business as collateral, rather than relying on its past trading history. This means that viable, well-managed businesses that have been impacted by unexpected events, such as the pandemic, can still access the funds they need to emerge stronger.