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| ‘Asset-based lending’ |
Comments from Richard Mascall of SHM Smith Hodgkinson for Tony Harrington for the Midlands Business Insider ‘Asset-based lending’ feature - March 2007
“Asset Finance can quickly generate funds for business growth or development. Put simply, asset finance is essentially borrowing against an asset or assets that are utilised as security for a loan.
“There are many products available - sale and leaseback is a popular option, allowing for capital to be provided to the company in the form of a percentage of the asset’s value.
“For SMEs looking at asset-based finance the market is highly fragmented with banks, finance houses and independent funders all providing products which range from operating leases, hire or lease purchase, sale and leaseback to chattel mortgages.
“Asset finance provides a fast generation of funds for business growth and development. With the wide range of the products there are real alternatives to the traditional extension of overdraft facilities, factoring or invoice discounting.
“The evidence is that there is a move away from high street banks to asset-based lending specialists. With the flexibility they can offer it makes it a great deal easier for SMEs to find the best solution.
“We are also seeing a growing trend towards sale and leaseback. This allows capital in the form of a percentage of the asset value to be raised quickly against plant and machinery assets. Once the advance is repaid in full, the assets pass back to the company.
“An asset’s real value can often be undervalued. Balance sheets do not always reflect plant and machinery’s true worth, so it is essential to use specialist valuers who know the market. They are experienced working with asset finance, secured lending and structured finance so will give true values which will help you to achieve the best deal.
“It is important to consider the type of equipment you are going to use against asset-based finance. Lenders are always cautious about specialist machinery and prefer generic equipment as it always has a ready market. A processing plant is a prime example of equipment which will prove difficult to provide a realistic valuation for asset-based finance.”
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