Scaling Businesses With Asset Based Finance

Brendan Clarkson, Business Advisory Director at PKF Littlejohn, spoke to Josh Levy, CEO of Ultimate Finance about the challenges of starting up and scaling up your business, and discussed all things asset-based lending. Since opening its doors in 2002, Ultimate has provided more than £10bn in funding to support their customers’ growth ambitions.

How can asset-based lending help with both starting out and scaling up?

Every business’ journey is unique, but they do have pivotal moments in common. The first one is their inception, the point at which they started, because every business has a first day. Another key moment many will share is the realisation of growth potential, and the additional steps needed to be taken so that success can be achieved at scale.

To help businesses through these exciting and challenging times asset-based lending offers an array of funding solutions which can provide access to additional liquidity, breathing space and support that can make all the difference as entrepreneurs and business owners navigate investors meetings, steering groups and emotional rollercoasters.

What is asset-based lending?

Asset-based lending is a form of financing that uses assets of a business (most often hard assets such as receivables, vehicles, plant, machinery and property rather than soft assets) as security for a funding line. It can be a useful way of financing a business, be it for growth or day-to-day cashflow management, as it often provides more flexibility and lower interest rates than unsecured forms of credit or equity financing.

However, asset-based lending may not be suitable for every business or every situation, as assets are obviously a prerequisite, whether they are already owned or the funding line is to be used to acquire them, and businesses usually must be able to demonstrate good cashflow management and working capital efficiency to provide additional peace of mind for a lender. As with most financial decisions, a borrower should be certain they have explored all their options and understood the terms of any agreement with the help of an adviser, accountant, lawyer or broker to ensure that they have selected an option that is right for them and their business.

What are the different challenges with regards to starting up and scaling up?

Starting up is the very beginning of a business journey, where an idea, product or service is first launched and shared with potential customers. It is an exciting time but also a challenging phase where cashflow can be virtually non-existent yet expenses start to pile up with stock needing to be ordered, employees hired and facilities or equipment rented.

Scaling up on the other hand comes later, when a business has already launched and proved its worth and displays potential for further growth. Having already secured a loyal customer base, scaling up offers the opportunity to take a business to a wider audience and comes in various forms such as new hires, additional product ranges or services offered, entering new markets, or increasing production capacity.

Both starting up and scaling up have their own challenges and opportunities, and therefore may require different types of financing. Traditional funding such as bank loans and overdrafts are seldom suitable for either, as they often have strict eligibility criteria, higher interest rates, and/or longer repayment terms, whereas asset-based lending can provide strategic and tailored funding solutions that can target the very opportunity or challenge a business is taking on at any particular moment of its own journey.

How can asset-based lending help newly-established businesses?

Asset-based lending solutions come in various forms, such as Invoice Finance, Asset Finance and Bridging Loans, and each of them can help with specific opportunities or pain points.

Invoice Finance, for example, can help a newly established business with providing credit terms to its customers, which many B2B customers will appreciate (or even expect depending on the industry) without causing any cashflow issues by eliminating the need to wait for orders to be repaid before accessing the funds tied up in invoices. The funds can be used to fulfil further orders, pay staff, or increase stock levels, helping to get the business off the ground.

For businesses relying on machinery, plant or vehicles, Asset Finance offers a reliable way to buy or lease expensive hard assets key to their success without having to source – and quickly part with – initial capital.

How can asset-based lending help firms to scale up?

Asset-based lending can help businesses looking to scale up by providing them with the liquidity they need to target further growth. Funds tied up in invoices yet to be paid can be accessed and used to fund expansion plans, be it stock, staff or locations; bigger or additional hard assets can be acquired with Asset Finance; existing high value assets can be refinanced to access additional cash; and property can be obtained with strategic Bridging Finance.

Fully tailored multi-asset solutions such as Structured Finance have also proven to be a key tool for business acquisitions, Management Buy Ins and Management Buy Outs as they can provide maximum funding secured against a combination of existing assets such as receivables, plant and machinery and property.