Asset-based lending – an opportunity to be embraced
Ian Bath (pictured) is corporate sales director at Nucleus Commercial Finance
With SMEs accounting for 99.9% of all UK businesses, they undoubtedly play a significant role in our economy. However, accessing the right kind of finance remains a challenge for many of these businesses, particularly as high street banks are becoming increasingly reluctant to lend.
As a result, we continue to see growth in areas of business finance such as asset-based lending (ABL), as SMEs look to finance their ambitions with solutions that fit their businesses. Over the last 12 months, the number of UK businesses leveraging their assets through ABL has increased by almost a third.
ABL is a finance facility that helps companies to take advantage of growth opportunities and to continue to invest. It is a great option for businesses looking to finance management buy-outs/buy-ins, mergers or acquisitions. Alternatively, the extra funds can be used as a contingency, providing businesses with additional working capital when required.
One of the main benefits of ABL is that it can provide businesses with the necessary funds both quickly and flexibly, by allowing them to unlock the value tied up in assets like debtors, stock, plant machinery and property.
It also provides a more stable borrowing base in times of uncertainty when compared to more traditional forms of funding. With this is mind, it is encouraging to see that recent figures from the Finance & Leasing Association showed that asset finance new business grew by 8% in July.
This is compared with the same month last year and new business for deals of up to £20m increased by 7% over the same period.
The ability to raise funding against stock is particularly relevant at the current time as SMEs, particularly importers, look to safeguard themselves against the possible impact in their supply chain of a no deal Brexit.
The tailored and flexible approach of alternative finance providers comes into its own at this time and our ability to assess the whole of a business enables more tailored financial solutions to be put into place.
Although ABL is becoming increasingly popular, a number of business owners are still largely unaware of how it can help them to achieve their business goals.
In fact, our own research found that more than half (52%) of UK SME owners have business ambitions they feel they are unable to fund and ABL could be the answer they’re looking for. ABL also allows SMEs to build their business credit, which can open up future financing opportunities and increase access to additional working capital, meaning they can focus their efforts on future business growth.
The alternative finance industry offers a more flexible and personalised approach to lending, and ABL is just one of the many solutions available. As an industry, we have a responsibility to support the nation’s SMEs and better educate them on the other solutions out there so that they can fulfill their business goals.