"The flexibility of an asset-based lending facility allows companies to lend against existing machinery and stock and aquire additional funding as it grows."
A traditional source of funding
The traditional source of funding – banks – is not always an option for SMEs. Banks are moving away from traditional capital intensive products and looking to minimise funding against the security available. As a result, short and medium term loans and overdrafts are now less favoured than specific products. What’s more, traditional lenders often have strict criteria that must be met for a business to secure a loan. All it takes is for one bad credit rating and a business can be left without bank financing.
Even if funding is made available from the bank, SMEs often find the traditional lender is not as flexible as they need them to be. This lack of flexibility can be a huge issue for a growing business. The loan itself can limit a businesses’ growth as the business has to operate within the funding facility provided by the bank. SMEs can end up constrained by the mainstream lender in a funding facility which is too tight with no capacity for growth.
Where to go instead?
The good news is there are lots of alternative financing options with a myriad of short and long-term loan providers. Some options are easy, making them attractive but it’s important to work hard and work out the right option to suit the business.
For example, crowdfunding and peer-to-peer lending generally have low ‘entry’ requirements, requiring little information. This can be a great platform for start-ups as it allows them to get hold of the cash they need quickly. However, this option isn’t necessarily able to grow with the business and therefore will be unhelpful in supporting the business on its next stage of growth.
For ambitious growth companies it is therefore important to find a financing option which can grow with the business. One example of this is asset based lending - a type of business financing that is secured by company assets. The flexibility of an asset-based lending facility allows companies to lend against existing machinery and stock and aquire additional funding as it grows.
A good asset based lender will develop a deep understanding of the business requiring funding. By understanding the dynamics of the business, an ABL can effectively advise on the right financing options and flex with the businesses’ needs, reacting quickly when needed. A funding facility can be created that suits the businesses’ current needs whilst also creating a long-standing arrangement to support the company throughout the life of the facility.
Securing the right funding option
There are no shortage of finance options available to growing businesses. However it pays to work hard and find the most suitable finance facility. If all a finance provider requires is for a business to fill out an information form then its unlikely they will understand the business being funded. This means the finance being provided is unlikely to work for the business long-term. For businesses searching for funding, look for funding facilities that match the way your business works. Some additional work at the beginning can provide far greater flexibility in the future. ABL can be an attractive, bespoke, option for those looking for finance to aid long-term growth.
