At its core, asset-based lending is a finance option where the borrower takes a loan out against pre-existing assets. There are many forms of asset that can be used to secure funding, some of the most common include:
- Property
- Stock
- Machinery
- Equipment
- Debtors
- Intellectual property (IP)
Asset-based lending is available to businesses in a commercial capacity and is rarely offered to consumers.
Asset-based lending is a great option primarily for larger businesses with a minimum annual turnover of £5 million. This type of financing is often used by companies that have significant assets and need to leverage them to unlock capital. Typically, businesses with an annual turnover between £10 million and £250 million are eligible for asset-based lending, making it an ideal solution for established enterprises looking to scale operations, manage cash flow gaps or fund expansion.
The benefits of asset based lending
There are several reasons that a business or enterprise may decide to apply for finance in this way. Some of the key benefits are:
Speed
Securing funds in this way is often a quick and easy process. Once assets have been verified businesses can expect to have access to funds within 4 weeks.
Flexibility
Unlike other sources of business finance, asset-based lending comes with very few limits on how the funds can be spent. This means greater flexibility for the borrower.
Lower interest rates
As asset-based lending is considered less risky than unsecured lending, lower interest rates are generally charged. If assets that are put up are considered to be liquid enough then these rates can drop further.
Other funding options
Asset-based lending is one source of finance that can be used alongside others. This means that if businesses need access to large amounts of cash quickly they can borrow from multiple sources.
Improved cash flow
Cash flow can be improved by harnessing previously unencumbered assets. This generates more money and allows for further liquidity when the business needs it.
Stable repayments
Repayment terms and periods can be fixed, allowing for a structured repayment plan meaning clearer financial forecasts in the future.
What are the risks associated with asset based lending?
As with all borrowing, there are some risks attached. For example, your company will need to pass a credit check before being accepted. If you fail this, your credit file will be negatively affected.
Any defaults or missed payments will result in penalties set out in the finance agreement. This will increase the total amount payable and could also negatively affect the business’ credit file.
If multiple payments are missed you will risk losing your assets. Any assets that have been secured against the loan could be seized and sold on to pay the debt.
Customer experiences and success stories
Asset-based lending has supported many businesses in achieving growth and operational success. Companies from various industries have leveraged their assets to gain quicker access to working capital, which allowed them to expand, manage cash flow gaps and invest in growth initiatives. For instance, a company in the manufacturing sector was able to secure a £20 million loan against its equipment and inventory, enabling it to scale production and meet increased demand without sacrificing financial stability. Success stories like these show how asset-based lending can fuel business growth in different sectors.
Eligibility requirements
To qualify for asset-based lending, businesses generally need to meet certain criteria. Lenders typically require that your business has been trading for at least three years and generate an annual turnover of between £10 million and £250 million. Additionally, asset-based lending is primarily available to larger, established companies with valuable assets that can be used as collateral, such as unpaid invoices, inventory, property or equipment. Smaller businesses or startups may not qualify for this type of financing.
How much can you borrow?
A common point of reference here is the ‘loan-to-value ratio’. A lender will typically set the maximum that they are willing to lend at a rate that is equivalent to a certain percentage of total asset value. The rate at which this is set depends on myriad factors including the type of assets being used and their liquidity. The more liquid the assets, the higher the loan amount.
The loan-to-value ratio can be worked out in the following way:
Loan to value ratio = Loan amount ÷ Asset value
Here, the loan amount refers to the total amount that the lender is willing to lend and the asset value refers to the total value of assets being used as collateral.
If you think securing funding against business assets could help your company then get in touch with our experienced team today. We offer a range of lending options and could help you secure anywhere between £5m and £100m. Our products offer up to 95% advanced rates and are repayable over a period to suit you.
We also offer asset-based finance with funding packages varying from £25k to £2m. These are available with repayment terms of between 12 and 60 months. VAT deferral is available.
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