Asset-Based Lending Becomes Key to Finance Director's Toolkit; Mark Harris, Head of Corporate at HSBC in the Midlands, on the Growth of Asset Based Lending
Byline: Mark Harris
Asset based finance is increasingly forming part of the discussions that we regularly have with our clients, advisers and the professional services community.
Finance directors view it as an important part of their funding toolkit and asset based finance is a common component of everyday working capital solutions.
It is a flexible and cost-efficient method of funding corporate activity, be it expansion into new markets, funding an acquisition or investing in equipment or staff.
Obviously, the traditional sources of funding still remain, including bank loan, overdraft, venture capital and private equity, but there has been a clear trend in recent times towards asset based finance to complement these sources and businesses are far more open to discussing these forms of funding than ever before.
This year, in the Midlands we are on track to at least double the volume of asset based finance business we complete compared to 2011. Whilst there has been a significant upturn in companies leveraging their debtor book to generate finance, larger companies are also increasingly looking to use inventory, plant & machinery and unencumbered real estate as a way to fund their business.
The benefits of asset based finance, particularly invoice finance, to a business are well documented. It enables companies to use their assets to access greater levels of funding than might otherwise be possible and supports high growth ambitions and intensive working capital requirements. It provides companies with flexibility because the level of borrowing matches the business's sales, so as sales increase, the amount of funding increases in line with them.
Importantly for the business, the cost of finance for an Invoice Finance deal is generally about the same as for overdraft, but can be more flexible as it keeps pace with sales.
For the lender, it is attractive on both a risk and capital ratio level and often enables the lender to release greater levels of finance than they would under a traditional loan structure.
Most typically we are seeing assetbased finance used by businesses in the Midlands for growth purposes with companies using their debtor books or other assets to accelerate business expansion.
There are plenty of strong and growing businesses in the region, particularly those that are targeting international growth, and structuring an effective funding package to enable them to take advantage of overseas opportunities is crucial. …