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Asset Based Lending in 2009: getting finance in difficult times
Steve Websdale, Managing Director of Venture Structured Finance, outlines how, in these turbulent times, Receivables Finance and Asset Based Lending (ABL) will take on a more responsive and robust role for funding in 2009.
The search by businesses for robust and responsive finance is borne out in our experiences at Venture. We witnessed more enquiries during the second half of 2008 than ever before. A greater number of businesses are turning to Receivables (Invoice) Finance combined with an element of ABL to deliver more stability, during these recessive economic times.
ABL: versatile finance for 2009
ABL works by unlocking the capital value of a business’ assets. Provided as part of a Receivables Finance package to release further funding from the different assets a business may possess, which can be in the form of unpaid invoices, inventory, property, plant and machinery.
2009 will be the year of the turnaround situation and ABL can be invaluable in providing sufficient liquidity to execute restructuring. Its revolving nature when delivered against Receivables and Inventory, means funding is guaranteed to meet the long term needs of a business’s sales performance, delivering a level of flexibility a traditional overdraft or bank loans can’t match. Cash is king and, in difficult times, a steady stream of working capital can make the difference between whether a company will sink or swim.
Although the general appetite for acquisition deals will be significantly tempered throughout 2009, ABL’s ability to deliver long-term, flexible financial support means that it is particularly suited to supporting an acquisition, as it reduces the strain on a company’s cashflow during the often-difficult post-deal phase. Using ABL, the acquiring management team can leverage assets from within its business to unlock extra capital to enable the purchase as well as retain control post-deal, without having to surrender any of the business to an investor.
Acquisition activity will mainly fall into the necessity category, with companies having to sell aspects of their organisations to raise capital to survive. We are likely to see weaker rivals swallowed up by stronger competitors, taking advantage of bargain opportunities created by this market turbulence, and the credit squeeze will force them to seek out “alternative methods of funding” to push deals to completion.
The current credit conditions will continue to encourage more and more businesses to look beyond traditional sources of finance and ABL is increasingly being embraced by the centre ground of the Corporate Finance world. Putting the right funding package together will be a challenge during 2009 and I believe ABL will be instrumental in delivering financial stability during the turnaround circumstances.
Those and acquisition activities that do go ahead successfully will probably include an element of Receivables Finance and Asset Based Lending in the funding mix. Indeed it may be one of the few funding options available that will allow deal completion during these cautious and credit-starved times, due to its ability to leverage assured funds.
Factoring and Invoice Finance
Asset Based Lending