As pandemic-era government emergency loan schemes wind down, small and medium-sized businesses that have been awash with cash face a potential funding squeeze at the same time as managing a host of other cost pressures. For those SMEs that are seeking to grow out of the crisis and don’t have the cash on hand, there are now more options than ever to finance expansion through debt without needing to rely on a traditional high street bank.
One option that is increasingly growing in popularity is asset-based lending, which enables companies to tap into the value of their assets—be it invoices, real estate or even equipment—by borrowing against them. Last year, invoice finance advances rose by 25% to £17.4bn, while new asset finance business as a whole was up by 14% to £31.3bn.
“Where people have weathered the storm and are looking to grow, asset-based lending is a great financing vehicle to use because people have got assets, what they haven’t got is cash,” says Paul Goodman, chair of the National Association of Commercial Finance Brokers and managing director of Goodman Corporate Finance. “There’s no better way to grow your business.”
That growth in asset-based lending is in part down to myth-busting. What was once seen as a last resort for raising funds, with a misplaced reputation of being expensive and complicated and reserved only for the largest companies, is now increasingly viewed as a way for SMEs of all stripes to access flexible financing to fund growth or to simply refinance.
“We’ve seen a shift back towards asset-based structures and the benefits that come with that around personal service and flexibility and potentially the ability to generate more funding availability from assets than could be done from cashflow,” says Josh Levy, chief executive officer at Ultimate Finance. “The industry has changed a lot over the last few years, the misconceptions that used to exist with asset-based lending, they’re all gone.”
Specialist asset-based lenders such as Ultimate Finance also harness technology to learn more about their customers, giving SMEs access to the type of high-touch relationship management that usually only the largest corporates receive.
“We’re able to really understand their business and their needs and how we can support it,” says Levy.
One company that has benefited from that deep understanding is The Merlin Partnership, a motorcycle clothing and accessories business based in Staffordshire. Not only has it been using asset-based finance to expand its business, chief executive officer Steven Franklin says his company owes its existence to its relationship with Ultimate Finance.
“Had we have been with a [traditional] bank as our provider of funds going into Covid, we would not have been here [today],” he says. “We’ve come out of this miles stronger than we went in, but we wouldn’t have got out of it at all without Ultimate Finance.”
That backing—where a high street bank may have simply called in its chips—has enabled the business to weather the Covid storm and thrive.
“One of our greatest assets has been our relationship with Ultimate Finance —it has been part of how we’ve got to where we are,” says Franklin. “If you’re looking for somebody to be alongside you, rather than somebody who’s going to prop you up, then asset-based lending is going to be a happy marriage.”
There is, however, still a reluctance among some SMEs to finance growth through debt, as opposed to banks being unwilling to lend.
“Access to finance is often cited as a big barrier but it tends to be as much about the demand for finance as it is the availability,” says Levy. “The biggest source of failure is cashflow rather than profitability, so as much as a reluctance to borrow is holding back the ability to grow, using debt products could be the thing that actually keeps a business afloat.”
That is why using an asset-based lender as part of a broader financing strategy can give SMEs an edge rather than having to rely on traditional banks to step up when cashflows are strained.
“It’s about being proactive and taking advice early—the earlier you take advice as a business, the more options you have,” says Levy. “The further out you get, the narrower your options become.”
To learn more about how Ultimate Finance can help you unlock faster business growth through asset-based lending, click here,
Content provided by Alan Agency