While the credit crunch and the ‘R' word dominate the headlines, the fact is that for majority of us in business, life has to go on. Now, more than ever before, the only way to guarantee the survival of your business is access to working capital and a renewed focus on cashflow.
It is fair to say that lenders are passing on their own recent reality check to their customers, by way of reduced lending, higher rates and insisting upon more security for borrowing. For the past five years, raising finance has very much been a buyer's market, with lenders falling over themselves to provide unsecured finance to businesses based on high multiples of EBITDA.
While the high street banks are nursing their wounds from the losses they have incurred in the sub-prime market, there are still plenty of bank and non-bank lenders ready to finance your business. But now the rules have been revised.
Today, and for the foreseeable future, lenders will focus on matching lending to assets, so as a business owner the skill is to know which lenders will generate the most cashflow against the assets on your balance sheet.
According to recent figures, almost 50,000 companies in the UK routinely use ‘asset-based lending' (ABL); a growing proportion of which are larger companies and many of which use the products to help fund mergers and acquisitions. During the first quarter of 2008, companies with a turnover in excess of £5m used this type of funding to borrow over £11.bn, an increase of 20% since the first quarter of 2007. Among those to have utilised its expertise to replace traditional bank debt are corporates such as Austin Reed, MFI and Woolworths.
As the ABL market continues to develop, providers are developing strong niches where their clients can benefit from greater added value. For example, in 2007, export invoice finance, a form of ABL, rose by 25%, as both independent providers and the high street banks continued to develop their pan-European capabilities to help fund customers' trade flows abroad. This is a trend which looks set to continue as businesses seek out ever more customers further afield.
Given the circumstances facing many UK businesses today, asset-based lenders come into their own: they allow a business to leverage a higher level of finance than more traditional funding methods. ABL generates cash against a wide range of assets such as trade debtors, stock, property, plant and machinery and even intangible items such as brands or future orders, while keeping the relationship with one provider.
The flexible approach employed by many asset-based lenders enables them to focus on the fundamentals and future prospects of the business than the immediate trading. There are hundreds of such innovative lenders out there. The trick is to find the synergy necessary between funding partner and business to optimise on the right solution tailored to the need of each business.
Evette Orams is director of Hilton-Baird Financial Solutions
Hilton-Baird has over a decade of experience of matching client needs with the most suitable ABL partner. A critical part of our success is the fact that we only get paid if we are successful in arranging finance for a client. It is, therefore, very motivating to get a deal structure in place that not only meets a client's immediate but also longer-term cashflow requirements.
As the largest corporate finance brokerage for cashflow solutions in the UK, we have the experience to assist businesses of all sizes from new starts, owner-managed, through to large pan-European corporate entities. For more information visit our website www.hiltonbaird.co.uk, call 0800 9774833 or email newbusiness@hiltonbaird.co.uk
