From transfer of ownership to growth finance, or simply refinancing to provide adequate headroom, asset-based lending (ABL) is a funding solution some SMEs are not aware of. ABL provides access to capital which may not be available through other financial products such as traditional loans, which rely solely on positive cash flow and creditworthiness. With ABL, tangible assets are used as collateral and are usually combined with a range of different funding options, typically with invoice discounting at the core.
Assets utilised in ABL include , inventory, machinery and equipment, property and accounts receivable. Cash Flow term loans can also be provided for businesses generating sustainable profits.
Benefits
- SMEs are able to unlock higher levels of funding than with other financial products
- Facilities can be offered without covenants and where covenants are necessary, these are discussed with management and monitored in life.
- Other finance products can be used alongside ABL
- Following due-diligence, funds can be available within a short time frame of a matter of weeks.
- By leveraging assets, SMEs can improve their cash flow and provide headroom to scale or navigate fluctuations in tariffs & seasonal trade.
Risks
- A hard credit check may impact credit rating
- As with any financial arrangement, defaulted payments will incur charges and late payments will affect the business’ credit rating
Who is ABL suitable for?
ABL finance facilities can be harnessed to support a huge range of methods that SMEs use to target growth, such as management buy-outs, management buy-ins, building a new growth strategy, diversification into new markets, transfers to employee ownership and refinances.
This type of finance facility is ideal for SMEs who have a seasonality to their business, concentrated debtor levels, or for businesses navigating unpredictable markets or inconsistent cash flows.
Tom O’Dell, Sales Director (North West and Midlands) says: “Regardless of how businesses plan to use the funding, our approach is always to lend to business owners first and take the time to understand their needs. Often this involves working with colleagues across Praetura Lending to structure facilities that meet the business’ objectives.This allows flexibility to adapt and evolve financing solutions in line with our clients’ growth.”
What does an ABL facility look like?
The amount SMEs can borrow depends on the value of the assets used as security. This is calculated using a loan-to-value ratio and is also dependent on their liquidity. With invoice finance, businesses can access up to 90% of the value of unpaid invoices.
Which sectors do we support?
At Praetura Commercial Finance, we’re sector agnostic as funding decisions are based on the quality of the underlying business and management team rather than a specific industry. During 2024, we supported a wide range of sectors with the top five being manufacturing, steel, automotive, recruitment, and food production.
“At Praetura Commercial Finance we work closely with introducers and advisors. We take the time to understand each client and their business requirements before structuring a facility which ensures they will thrive. Clients have direct access to our senior decision-makers, which speeds up the approval process and provides assurance to businesses during the early stages,” adds Tom.
Please don’t hesitate to get in touch with the team who would be happy to provide advice on any of your client’s funding requirements.
