Receivables finance and Asset-Based Lending are set to take on a more responsive and robust role in funding this year, writes Steve Websdale, MD of Venture Structured Finance

Receivables finance and Asset-Based Lending are set to take on a more responsive and robust role in funding this year, writes Steve Websdale, MD of Venture Structured Finance

Given the difficult economic conditions, getting extra funding to support a business through conventional sources is tough. Traditional lenders have been tightening their credit conditions for months and the absence of liquidity is forcing increasing numbers of businesses to look beyond long-established methods of raising capital, to alternative methods of funding.

The search by businesses for robust and responsive finance is borne out in
our experiences. 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 asset-based lending (ABL) to deliver more stability, during these recessive economic times.

Versatile finance
ABL works by unlocking the capital value of a business’s 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.

This year will be the year that turnaround comes to the fore 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 acquisitions will be 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 cash flow 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.

Looking ahead
The current credit conditions will continue to encourage more and more businesses to look beyond traditional sources of finance, and the centre ground of the corporate finance world is increasingly embracing ABL. Putting the right funding package together will be a challenge during 2009, and I believe ABL will be instrumental in delivering financial stability during many business’s turnaround circumstances.

Those acquisition activities that do go ahead successfully will probably include an element of receivables finance and ABL 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.

Contact
Steve Websdale can be contacted by email:  steve.websdale@venture-structured.co.uk