Asset-based lending (ABL) – an alternative to traditional business loans where money is borrowed against the value of the company – has become more popular amongst big businesses in the past few years as more and more corporations reported challenges in securing commercial finance due to unpredictable economic recovery. In 2014, ABL was up 16 percent on the previous year, and was most notable amongst companies with revenues greater than £100m as they had more resources to borrow against.
However, for the first time we’re beginning to see more and more small businesses jumping on the Asset-based lending bandwagon, and, as a result, the nature of asset-based lending is beginning to change. Traditionally, ABL was a form of business funding that was used for short-term boosts or to ‘bridge the gap’ – to ride through financially tough periods. Today, SMEs are viewing ABL in much the same way they view small business loans – for vital growth and development within their industries.
For small businesses, the primary advantage of asset-based lending is access to financing that can help them grow and develop. ‘The speed at which asset-based finance facilities can be agreed or extended makes them an ideal way for businesses to respond quickly to growth opportunities as they arise’, says Jeff Longhurst of the Asset-Based Finance Association (ABFA). Depending upon the type of business, some SMEs could be able to borrow 90 percent of their unpaid invoices, as well as borrow against total value, business premises, and equipment.
A further advantage for SMEs is that asset-based lending typically comes with very competitive rates, which in some cases can make it a much more attractive option than standard small business loans. Typically, businesses will pay rates roughly the same – or even slightly lower – than they would with a standard business loan, making this a very attractive option for SMEs working to a tight budget.
By using a price comparison tool to explore the different financial products offered by banks in the UK, businesses can easily identify providers that are branching into asset-based lending. One of the very first high street banks in the country to extend into this sector was Lloyds, who created an asset-based lending arm in response to research suggesting that 62 percent of businesses who had previously used ABL plan to do so again to unlock their true value through their assets.