Are you looking for funding but unsure where to turn? It’s likely you’ve read about alternative options such as Peer2Peer lending and crowdfunding, especially as traditional bank lending brings with it the issue of having to personally guarantee any loan.
If ‘asset based lending’ aren’t three words batted around your work corridors, it’s likely that they soon will be.
According to the Asset Based Finance Association, this is the fastest growing form of alternative finance around, with large amounts of lending made available against machinery, unsold stock, and similar hard assets has increased significantly in the last five years, rising 71% from £2.5 billion in 2011. You may be surprised to know that a staggering £4.3 billion of alternative funding is available to UK businesses, and those businesses have drawn down £1.2 billion in new finance.
So how can asset based lending help SME’s? The government has announced the launch of its Bank Referral Scheme, giving UK SMEs greater accessibility to funding options. Businesses that cannot get funding through some of the UK’s largest banks, will automatically be referred to other platforms where alternative finance options will be available, including asset based finance. If your company owns assets including property, machinery and intellectual property, you can borrow against these.
Asset based lending is a common solution to companies facing certain challenges, in need of immediate funding, you may be in the middle of an acquisition, have a short credit history or growing rapidly.
To secure an asset-based loan you need to provide financial information that is detailed and accurate. You need to be able to convince the lender that not only do you have a credible case for long-term viability but you also have a handle on the business.
The asset based lender advances funding to the borrower based on the value of the assets presented as collateral. With asset-based loans, companies can get the cash they need and immediately increase their working capital. These loans can be flexible, give you an immediate cash injection and are easier to obtain than traditional loans.
However, as with most things in life (including other forms of lending), nothing is free. Asset based loans cost more than traditional loans. Interest rates vary, and lenders will sometimes include additional “audit” and due diligence fees to the overall cost of an asset-based loan. In the event of non-payment, the assets that got you the loan in the first place are likely to be seized and interest rates and fees can be higher for companies with poor or not enough credit.
It’s all well and good borrowing against your farm outbuildings, in order to purchase the farming equipment to fill them, but make sure you have a solid business plan and you’re as sure as you can be that you can make those repayments. As with all forms of funding both traditional and alternative, make sure you know exactly what you are signing up to.