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Asset-based funding is vital route for many businesses

Asset Based Lending (“ABL”) remains an important route to funding for many retailers, wholesalers and manufacturing small to medium enterprise (“SME”) businesses in particular; and will continue to be a key access to funds both in its current guise and in future form as funding and security pools change. ABL remains the most fluid and flexible form of security with SMEs reliant on floating charge lending incorporating inventory revolving facilities along with the primary invoice finance form of ABL supported by additional plant and machinery and property term loan facilities.

Investors use ABL to support acquisitions, as do MBO/MBIs deals, both of which have maintained traction amid economic and market uncertainty. Brexit has presented many challenges for UK businesses reliant on or exposed to Europe with some stockpiling due to the unknown, tariffs and variable trade restrictions that may well be implemented, which can prove to be an issue when cashflow is tight. Purchasing in advance leads to reduced cash availability in order to thrive withadded costs hindering a business. ABL eases cashflow issues and concerns via fixed and floating charge facilities.

ABL enables business to raise higher levels of funding to facilitate strategic plans or simply release additional working capital. ABL can offer higher levels of funding than invoice finance alone and release working capital against inventory, plant and machinery and property as noted. ABL is a bespoke solution, designed around a borrower’s specific requirements. For businesses with proof of strong cash generation in the past and positive cash forecast for the future, cash flow loans may also be available to further top up funding lines where appropriate.

Further risks loom with UK ABL under threat from the 2020 Crown Preference plans with proposals for the crown to be preferential in respect of floating charge lending that would likely impact inventory in particular. Undoing the Enterprise Act effectively leads to the crown once more ‘jumping the queue’. Lenders secured on an inventory floating charge may well be exposed and under collateralised in an insolvency. Crown liabilities need to be up to date to mitigate exposure and risk. Should proposals be approved; and there continues to be a great deal of opposition, floating charge lending could be as risky as unsecured lending. The UK needs reliable access to ABL funds to operate; and putting floating charges at risk may restrict access to flexible funding in the future, which will only be detrimental to HMRC in the long term.

We are perfectly positioned to support lenders and SMEs through the challenges and risks ahead offering advice and due diligence to assess the exposure and options to mitigate the risk. We provide independent and specialist all asset class valuations and sector guidance relating to inventory floating charge and receivable fixed charge facilities, along with plant and machinery and property term loans.

Source: The Business Desk

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Asset Finance Guide for Suppliers: Make Life Easier for You & Your Customers with the Right Asset Finance Solution

Asset finance is a vital finance tool for businesses that can’t afford to invest upfront in essential equipment and machinery. If you are a supplier, offering the right asset finance solution can help you onboard a significantly higher number of customers.

Keeping aside all the business and marketing jargon like ‘cutting-edge’ and ‘state-of-the-art’, it shouldn’t be too hard to see why businesses are constantly in a need to buy or lease newer, better, more efficient equipment, machinery and even software.

This need typically stems from two reasons:

  1. To stay relevant. When all your competitors are moving ahead of the curve, you are forced to take desperate measures to catch up. This isn’t an ideal way to look at things from the business perspective, but it is the cold, harsh reality. We can go so far as to say that many businesses find themselves going for newer assets that they wouldn’t really need if it weren’t for the competition.
  2. To add to the top line. In other cases, buying or leasing assets is a genuine need to maintain, sustain and improve operations. Businesses estimate that the costs of onboarding an asset will compensate themselves through better performance, productivity and/or efficiency, adding more strength to their top line.

Regardless of the reasons, the only thing suppliers need to know and understand that there is and will always be a steady demand for assets (so long as your business is on the right side of technology, trends and market forces). Despite this factor being in their favour, many suppliers and vendors end up performing poorly – thanks in no small part to their inability to look after customers’ needs.

Asset finance solves this problem.

What Is Asset Finance?

Every business knows this very well – it’s much easier to finance products and services than getting cash loans.

This applies even more strongly to small partnerships and sole traders. Getting a personal loan from a high-street lender and diverting the funds towards buying or leasing an equipment they sorely need is a tough task. It not only puts their personal credit on the line, it also means that they end up closing doors on their business should the need to borrow more arise in future.

So, quite predictably, it’s very common to see businesses that are stuck between the proverbial rock and a hard place – the need to have an asset on board and the inability to pay for it.

As a supplier or vendor, this doesn’t bode well for you. You can’t just turn down prospects after prospects just because there’s no workable financing solution to make the transaction happen.

“Even though it’s true that SME loan acceptance rates are promising, businesses will take every opportunity to spread their purchases without touching the cashflow. If you offer your customers a customised asset finance solution through a reliable, market-leading broker like Commercial Finance Network, you can bring down the biggest conversion and sales barrier for your business.”

How Does Asset Finance Help Your Customers?

Before understanding how asset finance helps suppliers and vendors, let’s quickly take a look at why it is so popular among businesses (your customers).

It’s Easy.

It’s much easier for businesses to secure asset finance than getting a business loan. Asset finance is usually tied to the asset being bought or leased, and, in a way, is secured. This allows lenders to be more lenient while assessing asset finance applications.

It’s Flexible.

Asset finance is among the most flexible commercial finance solutions out there. Depending upon the type of asset finance chosen, the borrower can choose the interest-only model or the flexible monthly instalment model for repayment. While leasing the asset, there are usually little to no upfront costs involved for the lessee.

Commercial Finance Network offers some of the most flexible asset finance partnerships to suppliers and vendors. Based on the nature of the asset and the requirements of the borrower, we may be able to extend partial or full finance, customised repayment schedules (including a possibility to introduce repayment holidays) and some of the lowest interest rates going around.

It Makes More Sense.

By not paying the cost of the equipment or machinery (or any other asset, for that matter), the borrower can make sure that their cashflow isn’t hurt. They get to enjoy the benefits of having the asset on board without sacrificing their working capital – a win-win on most counts.

It’s Cheaper.

Buying or leasing assets, in most cases, is tax deductible for businesses. Through Annual Investment Allowance (AIA), businesses can claim tax relief to the tune of qualifying asset expenditure, adding a huge incentive for asset acquisition.

The good news is, the HMRC has temporarily increased the AIA limit from £200,000 to £1,000,000 for two accounting years (starting 01/01/2019).

Find out here if your customers can claim AIA for the assets on your inventory.

How Does Asset Finance Help You, As a Supplier/Vendor?

Being a supplier or a vendor means that you get to work with a variety of businesses. Let’s just assume that you turn down a significant fraction of leads because there is no feasible financing solution available for the customer to finalise the agreement.

In that case, the easiest way to calculate the impact of an asset finance partnership on your bottom line is this:

Let’s say you generate a net profit of £5,000 per sale and £900 per lease.

You generate 2,000 leads per month, with a conversion rate of 1% (in sales) and 1% (in leases). That means you generate profits to the tune of £118,000 per month. If you turn down 0.1% of leads just because the customer isn’t able to secure a good asset finance package, that adds up to £11,800 per month in lost profits!

By forming a no-obligations partnership with a responsible, industry-leading whole of market broker like Commercial Finance Network, you can boost your sales significantly, without incurring any charges. To know more or to request a call back from our asset finance experts, please get in touch with us.

Here are other reasons for suppliers and vendors to offer asset finance to their customers:

It Frees Up Your Money

If you are a supplier, here’s what a typical cash cycle may look like for you:

  1. You purchase an asset from the vendor (day 0).
  2. You pay the vendor within two weeks (money out by day 30, you’re cashflow negative with an asset on your books).
  3. The customer agrees to purchase the asset from you on day 40. The asset is immediately moved off your books.
  4. You’ll still be cashflow negative for the next 30 days.
  5. On day 70, you finally receive the payment for the asset. You book profits and you’re cashflow positive.

Alternative, if your customer had an asset finance solution to facilitate the transaction, this is what happens:

  1. You purchase an asset from the vendor (day 0).
  2. You pay the vendor within two weeks (money out by day 30, you’re cashflow negative with an asset on your books).
  3. The customer agrees to purchase the asset from you on day 40. The asset is immediately moved off your books.
  4. The transaction is complete within 2-5 days.
  5. You book the profits no later than day 45. You’re cashflow-positive.

So, essentially, asset finance significantly improves your cashflow cycle in your favour (from 70 days to 45 days, in this case).

It Removes the Most Common Conversion Barrier.

Investing heavily in an asset is never an easy decision for your customers – especially if they are small businesses.

You can be sure that they are looking around for better deals even when the negotiations are on with you. In such cases, if they can get an affordable asset finance quote, it can be the decisive factor in your favour.

It Doesn’t Cost You Anything.

Forming an asset finance partnership with Commercial Finance Network means you will only be directing your customers to us. Your receivables will be fast-tracked directly to you, without you having to bear any extra costs.

Types of Asset Finance Your Customers Can Avail

  • Hire Purchase
  • Finance Lease
  • Operating Lease

Asset Finance Makes Life Easier for You and Your Customers

As a B2B, you’re going to have to take every measure to improve the conversion rates on all fronts. If you don’t close your customers, your competitors definitely will.

To know more about how Commercial Finance Network’s end-to-end asset finance services help your customers (and – in turn – you), do visit our asset finance page.

Help yourself by helping your customers. Contact us today to request a free asset finance partnership proposal!

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UK asset finance market remains on track for record year

Growth in asset finance new business (primarily leasing and hire purchase) for the UK remained stable towards the end of last year as the industry prepared to make a record year.

New figures released by the Finance & Leasing Association (FLA) for November show that plant and machinery finance and business equipment finance sectors grew 9% and 8% respectively compared to the same period last year.

Overall growth was slowed because finance demand for business cars and IT equipment fell by 6% and 32% over the same period.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The asset finance market’s performance in November means the industry remains on track to report a record level of new business in 2018 as a whole.

“The percentage of UK investment in machinery, equipment and purchased software financed by FLA members reached 32.2% in the twelve months to September 2018, a nine-year high.”

Source: Asset Finance International

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UK invoice finance and asset-based lending grows despite economic uncertainty

The UK’s invoice finance and asset-based lending industry achieved modest growth, despite business uncertainty over the economy, new figures from UK Finance show.

The association’s invoice finance and asset-based lending update shows that advances stood at £22.6 billion at the end of Q3 2018, a rise of 2.4% compared to the same period last year.

Invoice finance accounted for 80% of lending by value, with most clients requiring factoring or invoice discounting.

The number of businesses using invoice finance and asset-based lending remained stable at around 40,400, of which 1,641 companies used asset-based lending in the quarter.

Overall, most clients were in the service, manufacturing or distribution sectors, with an average advance value of around £560,000.

For large businesses with a turnover of more than £100 million, support stood at £7.4 billion, with an average advance value of £17.2 million.

While there was growth overall, demand among small businesses with a turnover of less than £1 million fell.

The amount of finance provided to companies with turnover between £500,000 to £1 million was down 15% year-on-year to £436 million. Demand among companies with a turnover of less than £500,000 fell 5% to £664 million over the same period.

Stephen Pegge, managing director, commercial at UK Finance said: “Asset-based lending continues to show steady growth, driven mainly by advances to larger businesses.

“Support to small and medium-sized companies through invoice finance and asset-based lending is now comparable to total balances drawn on overdrafts.

“However, overall growth has remained modest in line with recent trends across SME lending, as businesses delay investment decisions until the broader economic picture becomes more certain.”

UK Finance is the collective voice for the banking and finance industry, representing more than 250 companies across the industry.

UK invoice finance and asset-based lending

Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Total advances (end quarter balances, all products) £m  22,039 22,135 21,633 21,408 22,567
Annual year-on-year growth 13% 5% 4% -2% 2%
Invoice finance – advances against debt £m 17,384 18,031 17,344 17,052 17,905
Invoice finance plus – advances against debt plus other assets £m 28 29 29 31 30
Total asset based lending £m 4.158 4.059 4.246 4.303 4,607
Against debt £m 2,860 2,693 2,822 2,850 3,127
Against stock £m 733 759 893 867 867
Against plant and machinery £m 391 450 378 426 442
Against property £m 96 85 86 94 102
Against other assets £m 78 72 67 66 69
Other commitment £m 19 16 14 22 25

Source: UK Finance

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Call for government support as asset finance grows

The UK government has been urged to support the growth of the invoice finance and asset-based lending sector in 2018 after newly-released figures revealed that demand reached record levels last year.

Data released by UK Finance shows that total sales (turnover) of clients supported by invoice finance and asset-based lending are up 4% for UK clients, standing at £214 billion for the first three quarters of 2017.

Total advances (the amount of funding being provided to clients at the close of the most recent quarter) were up 13% year-on-year to a record level of more than £22 billion for UK businesses.

Client numbers remained stable at just over 40,000 UK clients.

The data revealed that the exporting picture is particularly strong, with sales from clients through export invoice discounting facilities up 33% year-to-date for Q3 2017 and export factoring up 11% over the same period.

Matthew Davies, director, invoice finance and asset-based lending at UK Finance, said: “There is increasing understanding amongst businesses of all sizes of how invoice finance and asset-based lending can support them as they grow, and it is particularly encouraging that a substantial proportion of the sustained increases in lending we’ve seen in recent months is helping boost UK exports.

“More funding could and should be provided through invoice finance. To unlock this, the government should bring forward long-awaited legislation to give more smaller firms, in particular, access to much-needed capital.”

So-called ‘ban on assignment’ clauses are sometimes imposed by larger businesses on their smaller suppliers and can restrict the finance options available to those supplier businesses.

To address this, the UK Government is expected to bring forward revised Business Contract Terms (Assignment of Receivables) Regulations.

UK Finance represents the finance and banking industry operating in the UK, with around 300 members providing credit, banking, markets and payment-related services.

The new organisation brings together activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.

Source: Asset Finance International