Cashflow is the lifeblood of any business, and as such, businesses are exploring an increasingly diverse range of financing options to complement traditional bank lending. One of these options is asset-based lending (ABL) which can release funds against stock, plant, machinery, land and buildings.
Recently published figures show that the number of companies in the UK and Ireland using asset-based finance continues to rise – and during 2012 there was an increase in the amount of funding being made available. Overall, the total number of businesses using this type of financing has risen by 4% since last year, with total advances to businesses in Q2 2012 of £16bn.
This is backed up by the experience of Ian Lomas, commercial director, Lloyds TSB Commercial Finance. "There's certainly an appetite for businesses to take on this type of funding in the current economic climate, as it provides headroom and flexibility for growth."
Unlocking value
ABL is a flexible and dynamic means to unlocking the value of a business's assets - supporting daily working capital needs or more ambitious funding for those targeting significant growth such as expansion, MBOs or acquisitions. It's a key part of a suite of asset-based solutions from Lloyds TSB Commercial Finance.
Benefits for business
According to Ian, ABL works like a "closely monitored debenture lend or overdraft facility". Like any funding option, the key to finding the best fit really depends on what the business is looking to get out of it. "ABL is a bespoke facility so we will need to understand your business and assess whether the solution fits what the business is looking to achieve," states Ian.
While ABL extends cashflow, it can also give businesses flexibility on the amount of funds they have available to them. "Some businesses may seek the funding and hold on to it - to use when an opportunity comes around - for example, to take advantage of early supplier discounts or an investment opportunity," Ian explains. "As well as meeting your working capital needs, it can also create more cash availability, thus giving the business greater flexibility."
And unlike other sources of funding where the key criteria is the ability to repay, asset-based lending grows as the business grows. Ian explains: "The facility rolls on and on until the business decides it doesn't require it anymore. As the business's assets grow, then the solution should grow with the business."
Growing a business
Asset-based lending is a versatile solution. "This facility is a dynamic one which moves every day, so typically entails slightly more administration and reporting for the business than traditional overdraft solutions, but offers greater flexibility and increased availability to working capital, making it useful for ambitious companies," Ian states.
"At its core, ABL is secured against the debtors of a business, so the availability of working capital will increase if a business experiences an increase in sales. We will be lending a percentage of a business's sales ledger. If sales drop off dramatically, then the amount of funding may also fall, in line with a business's working capital needs," says Ian. He explains, "If that was to happen, we work with the customer to understand their requirements and to restructure the facility to meet their needs."
Broad appeal
Traditionally, ABL has been associated with sectors such as manufacturing, distribution, support services and transport – but according to Lloyds TSB Commercial Finance, a greater variety of businesses are now using ABL. It's designed for businesses with a turnover of more than £1m, with capital tied up in debtors, stock, plant and machinery, or property.
Like other funding solutions, the amount that will be made available to a customer depends on the profile of their assets. "Typically, with asset-based lending, the funds available depend on a thorough assessment of the value and nature of those assets," says Ian.
This assessment takes into consideration a wide range of factors, to ensure that a business would be eligible. "When we look at the assets, we look at everything from debtors to stock, plant and machinery. We also look at historic performance and cashflow forecasts to make sure it's the right fit for the business," he explains.
A versatile solution
One example of a business that has benefited from ABL is EPS Services and Tooling which manufactures and services wide bandsaws. The Somerset-based company secured an ABL facility, to support an MBO and enhance monthly cashflow.
The company's managing director, Nick Palmer, explained the benefits of the solution to the business: "It gave us flexibility to support our revenue growth to ensure we have appropriate funding in the business. The associated IT and systems controls that came with the facility also ensured that we applied good business practices and sales controls to our sales ledger."
In addition, the solution came during a challenging time. "Lloyds TSB Commercial Finance was prepared to provide this solution at a time when others were not receptive to this type of investment. The process has worked well and has allowed us to grow from a £1.3m turnover to an annualised £1.65m turnover over the past 18 months – 20% growth," Nick says.
"We're now looking at further growth via acquisition, using the same methodology and the support of Lloyds TSB Commercial Finance."
For more information on asset-based lending talk to a Lloyds TSB Commercial Finance Regional Manager on 0800 550022 or visit our website www.ltsbcf.co.uk. Alternatively for more information on how Lloyds TSB can help your business overall, visit lloydstsb.com/business or call one of our local business development managers.
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Lloyds TSB Commercial is a trading name of Lloyds TSB Bank plc and Lloyds TSB Scotland plc and serves customers with an annual turnover of up to £15m.
Lloyds TSB Commercial Finance is a trading name of Lloyds TSB Commercial Finance Limited.
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The Lloyds Banking Group includes Bank of Scotland plc and a number of other companies using brands including Lloyds TSB, Halifax and Bank of Scotland, and their associated companies.
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