The Challenge of Funding Growth; Paul Edmeades, Business Finance Director, Business Development, GE Commercial Finance, Explains the Flexibility That Asset Based Lending Affords Companies

Article excerpt

Growth remains top of the agenda for many businesses in the Midlands, but how to fund this growth remains a key challenge as many firms comment that bank lending remains restrictive and that funders require high levels of personal security to support facilities.

In a recent report issued by GE Capital, based on interviews with 500 business owners in the West Midlands, 73 per cent saw it as essential that government, advisors and financiers do more to educate them on the full range of finance products and funding solutions available to them, in order that they could take advantage of the expected growth in the economy over the next few years.

Whilst overdrafts and senior debt remain the primary products made available to many SMEs and corporates, the market has also seen an increase in the provision of Asset Based Lending solutions to fund working capital and transactional events, such as management buy outs, cash out opportunities and acquisitions.

The term Asset Based Lending, for many, means the provision of Invoice Discounting facilities i.e. a revolving funding line secured against the sales invoices that a company has owing to it, by its customers at any given point in time. Businesses can expect to have up to 90 per cent of the value of their outstanding invoices advanced to them once the goods have been dispatched to the customer, with the remaining balance, less charges, paid upon receipt of funds from the customer. Some funders can also provide credit protection to help their client mitigate the risk of not being paid by their customer, something which is proving more important as the economy starts to pick up. In addition, some funders including GE Capital may provide facilities where the business is heavily reliant on one or two key customers, or where a high degree of funding against exports is required. Many Midlands-based companies see expanding into export markets as an opportunity for growth and the ability to obtain funding against these sales will be key in the decision-making process of the business.

Two other key reasons why Invoice Discounting may become the product of choice for many as they enter a period of growth are that, primarily, unlike overdraft facilities they are not generally fixed (in terms of quantum available) and grow in line with the increased sales of the business and secondly the facility is revolving, which could potentially improve the cash position of the business as opposed to a term debt structure where monthly repayments are generally required. …