At a time when the banks' lending to SME businesses
continues to fall and the Enterprise Finance Guarantee loan book is
contracting, is the time right for asset-based lending?
Small businesses continue to struggle to get loans and credit
from UK banks, who missed the Project Merlin lending targets. This
is placing increased pressure on the working capital of small
businesses and overdue trade invoices continue to rise.
Is asset-based lending the answer?
Asset-based lending (ABL) was once considered the lending of
last resort, but times have changed and it is now a realistic
alternative to conventional cashflow lending. At the end of 2011,
total ABL advances exceeded Ł16bn.
Across the UK and Ireland more than 41,000 businesses use such
facilities, which include factoring, invoice discounting and more
comprehensive ABL. These facilities are linked directly to a
company 's turnover so are less restrictive than traditional
overdrafts and grow with the business. The ABL provider can also
include a credit management service to collect and credit insure
overdue debts. Furthermore some ABL providers include Enterprise
Finance Guarantee loans in their offering.
Who are the ABL providers?
The ABL market is split between the bank owned ABL providers and
the independents. The bank owned sector can be further split into
the primary UK banks, with the majority of the ABL lending, and the
foreign bank owned ABL providers.
The market can be further divided by those that offer purely
sales-linked finance; factoring and invoice discounting, and by
those that include comprehensive ABL leveraged against stock, plant
and machinery, property and intangible assets.
There are over 50 ABL providers in the UK and Ireland, with more
than 95% being members of the Asset Based Finance Association, of
which Smith & Williamson is a founding affiliate member.
Which businesses are most suited to ABL?
Fundamentally a typical ABL prospect must sell on credit terms
on a business to business basis. UK and export sales can be
included, as can sales in hard currencies.
The ABL provider would usually like to see a good spread of
customers and some good quality debtors. However, spread may
sometimes be considered more favourably than quality. Invoices will
need to be backed up with signed delivery notes, time sheets or
sign off, so the debts need to be clearly provable and enforceable.
Similarly, businesses with equity in owned property or plant and
machinery and stock may be suited to comprehensive ABL.
Favoured sectors by the ABL providers include:
Smith & Williamson has very strong working relationships
with all of the ABL providers, factors and invoice discounters. We
do not operate a brokerage and take no commission on introductions
into the sector.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FCA, the PRA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week.
This weekly update from Clyde & Co’s Financial Services Regulatory Team summarises new developments as reported by the FCA, the PRA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.
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A summary of the new developments as reported by the FCA, the PRA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available.
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