Flexible finance


3 May 2011


Asset-based lending has taken on renewed significance as a hamstrung economic market continues its recovery. John Bevan, vice-chairman of the Asset Based Finance Association (ABFA) and head of sales finance at Barclays Corporate, explains how the inherent flexibility of this form of financing is a boon for firms in these testing times.


Asset-based lending has come a long way since its fledgling days in 1970s North America. The decade began with a weak economy and high inflation, compounded by wars in the Middle East and the oil crisis. But it was during this period of extreme economic uncertainty that the industry came of age, enabling businesses to trade regardless. Asset-based lending quickly acquired a reputation as a 'flexible' source of funding compared with debt finance.

Its rise in popularity since the '70s has been largely driven by the gradual recognition of the security and flexibility that asset-based lending offers. Roll the clock forward 40 years and we have entered this decade managing similar financial challenges - a soft economy, inflationary pressures, political unrest in the Middle East and soaring oil prices. Brent crude topped $126 a barrel in May, a two-and-a-half year high. But, while it is easy to point to economic similarities between the US of the 1970s and the financial challenges we are facing in the UK today, one element has changed - asset-based lending has moved into the mainstream, having proven its worth as a responsive, robust and reliable source of funding during both prosperous and more challenging financial times.
The recent downturn accelerated this shift in attitude as credit became scarcer and a number of foreign banks and non-bank lenders withdrew from the market.

As of December 2010, members of the UK's Asset Based Finance Association, (ABFA) were lending £14.9 billion to UK companies. Unlike more traditional products, lending via asset-based lending facilities grew by 8% from 2009 to 2010. The industry is very much open for business, with volumes of receivables (invoices) flowing through financiers for early payment in 2010 reaching £212 billion, a rise of 11% from 2009 and a figure that surpassed the previous peak in volumes of £208 billion seen in 2008.

Asset-based benefits

The key advantage of the product is the higher lending levels it allows compared with an overdraft or more traditional loan product. This enables businesses of all sizes to finance any number of activities, from growth and acquisitions, to buy-outs and turnarounds, or even as a way of overcoming the challenges posed by late payments. Today, industry funds more than 40,000 clients of all turnover bands, from start-ups to multinational corporates.

Asset-based lending is particularly suited to asset-rich companies that have a cash-flow need. It enables management teams to unlock capital tied up in the balance sheet by using their assets (such as receivables, property, plants, machinery or stock) as security against or in exchange for funding.

As a provider of this product we link credit availability to a client's growth, which means that as the clients business grows, more working capital is available. There is no need for a company to make another loan application; we anticipate requests so that funding can be accessed quickly. As our facilities track in line with the expansion of a client's business, they are becoming increasingly popular with dynamic and forward-thinking companies that value the power and certainty of an asset-based lending solution.

This increased awareness, along with the number of larger deals taking place, heralds a new era for the product in the UK corporate mainstream. North America remains the most sophisticated market, but as a member of the Asset Based Finance Association I am proud of the support the UK asset-based lending industry is providing to businesses as we enter a period of economic recovery.

Demand for credit remains subdued as businesses and consumers alike continue to pay down their debts. There is clear evidence of this among our own clients, as the more sophisticated larger corporates are taking less debt onto their balance sheets. As an industry we are open for business and ready to provide support for UK businesses to grow and prosper.