asset based lending or asset finance?
One thing that has become clear during this
economic cycle is that you take work where it is available. That
has been the case in the asset based lending and asset finance
sectors too.
Usually a fairly recession-proof market, asset
based lending has been dragged down not by lack of funds, but by a
lack of borrowing as it is geared to finance growth of businesses
and that has been lacking for many during the recession.
Equally, the level of purchases of new
machinery has been down as the confidence and cash flow to make
long term acquisitions has waned and therefore strategic purchases
deferred unless essential.
Consequently, there has been a blurring of the
lines of demarcation between asset based lending and asset finance.
So what is the difference?
In simple terms, asset based lending is a
financial blend of products but usually at its core is the
provision of finance based upon the purchase by the financier of
the book debts of the client. Left alone as a financial product,
this is often known as factoring or invoice discounting and the
purchase of the book debts by the financier may be either disclosed
or undisclosed to the debtor.
In conjunction with this may be other
financial products including term loans based on the value of plant
and machinery, property, stock or even simply on a client's cash
flow projections against any other assets it may own. These loans
when made in conjunction with a receivables finance form asset
based lending and can be much more flexible than traditional
overdraft or debenture lending and yield significantly greater cash
flow to a business.
If a business wants to purchase a single
substantial asset or a number of assets then, while it could use
asset based lending, it is more likely to look for asset
finance.
Asset finance usually requires that piece of
equipment to be held by the financier as security for the advance
and the finance will often be for a longer period of time but less
than the operating life of the asset so that there is a residual
value to recover the finance should the borrower default.
As such, either asset based lending or asset
finance can be used to finance the purchase of assets by a
business, but when the asset has a long useable life, or is of
substantial value, then asset finance tends to trump asset
based lending.
Can the two products work together?
Yes. In fact, they are complimentary and for that reason some
of the finance houses have both asset based lending and asset
finance divisions to cover all parts of the market, but separate
finance houses can equally co-exist easily.
Whichever way the finance may be approached
and whether for a lender or borrower, Blake Lapthorn is able to
assist.
