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Companies turn to asset based lending to fund growth
In the aftermath of the credit crunch, banks emerged far more risk averse when it comes to lending.
From a strategic perspective, asset-based loans tend to work best for capital intensive businesses with significant assets that can be collateralized and quickly converted to working capital. This was the frustration that current CEO of LAMNA Financial, Charles Meyerowitz experienced in his previous position as the CEO of a national dairy company employing 1000’s of people. He comments, “That industry is an extremely capital intensive and cyclical industry which often necessitated the need for temporary finance in addition to the traditional bank finance. The company had huge value in paid up assets and we battled to use those paid up assets to access capital - we were too big and the banks were too big, cumbersome and embroiled in administrative procedures to be able to attribute value to them.”
However, Meyerowitz says he could not blame them - the dynamics of the industry made it impossible to access the value which lead to his realization that there could be space in the South African market for such a service on a smaller and more intimate scale. A service available to both entrepreneurs and companies who needed temporary finance to weather the storm, provide working capital or take advantage of an imminent opportunity and did not wish to approach the banks due to time pressures, the nature of the security on offer or confidentiality. Shortly after Charles exited the dairy industry, he pursued the business concept of LAMNA Financial with an old friend and colleague.
Good prospects for asset-based loans generally cluster in the following business sectors:
Business and Professional Services
Most companies have various forms of assets which they can put forward as collateral to secure funding. Companies leveraging asset-based finance can take advantage of emerging opportunities such as a product line extension or capital for first to market advantage. For those business leaders whose organizations are experiencing steady growth but have limited access to capital, asset-based lending can provide working capital to drive expansion and gain immediate competitive advantage. Borrowers can generally obtain these loans more expediently, with less creditworthiness and fewer financial requirements than traditional financing. The service and provision of capital is always a confidential transaction.
As awareness of asset-based lending builds and its fortunes rise, more businesses will consider it as a viable option for a credible route for quick access to capital, even as traditional bank lending regains momentum and the economy gains traction.