Refinance of Working Assets

Simon Reynolds, Director, B2B Cashflow Solutions Ltd

 

'Sweaty' Assets

Within the current economic climate many owners of perfectly viable businesses are finding financial support from their bank and other core lenders increasingly challenging to secure.

The latest quarterly ‘Trends in Lending’ report published in Julyl by the Bank of England evidences a continued contraction in lending to UK businesses, and despite protestations to the contrary, the banks have become increasingly introspective post 2008 as recommendations from the final Vickers report (09/2011) on banking are implemented, and Basel III stretches the parameters of global banking legislation.

The resulting capital constraints many of the UK banks find themselves working under, exacerbated by reduced security values, especially in property, has ultimately resulted in restricted appetite for traditional core lending support to business customers while attracting ‘niche’ independent lenders into the business finance sector.

Many business sectors rely on a high capital asset base of tangible medium to long life business assets and while these ‘working’ assets produce core income they are often overlooked in considering their secondary value in generating additional cash for the business.

Known as ‘sweating assets’, re-finance can be a valuable tool in generating cash against existing property, plant, machinery, equipment and vehicles where alternative core funding is unavailable.

Unlocking this cash can assist with new development projects, growth or investment capital, acquisitions, working capital shortfall, re-structure of existing debt to reduce monthly debt burden, improved cash-flow, and repayment of bank debt

Asset re-finance lenders seek to understand the ‘stress’ (forced-sale) value of the subject business assets with a view to lending on a simple ‘asset lend’ basis with security against the lending specific to those assets.

Because the banks rarely take account of the working assets within a business when assessing their security position against existing and additional lending, re-finance has little or no impact on the bank’s risk position and can often be used to reduce unwanted bank exposure especially where overdraft is concerned.

While higher interest rates reflect the perceived risk to the limited number of sector lenders, where the business rationale for borrowing is robust, then pricing will be superseded by the value the cash will bring to achieve the specific business objective.

Delivery of funding through asset re-finance can generally be delivered in days rather than weeks or months with funding periods generally up to 5 years but be warned that the (unsupported) guarantees of the business owners or Directors will almost certainly be a prerequisite.

Naturally business owners will always contact their local bank Relationship Manager and other traditional financial partners for support, however where these business partners appear increasingly unable or unwilling to support many businesses owners may consider their very own untapped asset wealth to ‘self fund’.
 

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