This is becoming increasingly more common nowadays and covers all forms of funding that company’s can take advantage of based on the assets they own or purchase. A common example may be finance raised against plant and machinery or vehicles, either upon acquisition or otherwise (provided they are not already subject to a finance arrangement) or on stock in trade (as the time difference between ordering and paying for such goods and selling them on can prove debilitating for a company in terms of its cash flow.
The most common form of Asset Based Lending is factoring and invoice-discounting. These are a form of lending which is based upon the invoices raised by the company.
The benefit for the company is that it obtains access to cash quickly – between 50-80% (dependant on the company’s risk profile and the sector it works in) of an invoice may be paid as soon as it is raised together with the balance (less a fee) being paid when the invoice is collected.
This is very useful in circumstances where invoices take a long time to convert into cash. However it does carry the added burden of the associated fee which acts like interest but is at a higher rate.
The type of arrangement a company enters into very much depends on many factors and it is essential that the business obtains the right fit when considering this option. At Francis Wilks & Jones we can assist with these matters.
