The SME sector is the lifeblood and engine room of the British economy but we believe much more can be done to help business owners finance their expansion – by looking beyond traditional bank loans.

Inefficient banking arrangements can stifle growth and make companies hostage to perennial cash flow problems. SMEs have plenty of potential value locked in their balance sheets. Asset-based lending is a quick and simple way to unlock that value.

How does it work?

Simply put, asset-based lending (ABL) is a loan that is secured against the assets of the company. These assets could be accounts receivables, stock, machinery and equipment, property and other tangible assets. It is even possible to lend against a company’s future cash flow.

An ABL loan is typically led with an invoice finance facility. Combining both short- and long-term assets in this way can free up even more value in a company’s balance sheet, by unlocking the cash held up in unpaid invoices so firms don’t need to wait for their customers to pay them.

In short, ABL matches the company’s assets to its borrowing needs. The difference between traditional bank loans and ABL is that most standard loans are based on the balance sheet ratios and the cash flow predictions.

The main advantage for SMEs is this method of lending leads to greater borrowing capacity than the traditional approach to banking, enabling companies to unlock more cash for working capital and investment. But this is just one of the advantages of ABL for SMEs.

ABL can be easier and faster to access compared to standard bank loans, especially following the global financial crisis, as high street lenders have pared back traditional SME finance. Specialist asset-based lenders can often make a loan decision in a shorter timeframe than a typical high street bank.

More on asset-based lending:

• Gearing up
• Small business appetite sees ABL rise
• Cash flow kings

This type of lending facility can also grow in line with the business. It means money is available quickly to bridge any gap in the business life cycle – say for hiring additional staff to fulfil a new contract, or for buying additional stock in anticipation of seasonal demand – in short, providing the financial flexibility that is so vital for a young growing business.

Companies like Close Brothers who provide asset-based loans rely on their in-house expertise to craft the right deal for their clients. Our employees come from the very industries we lend to – such as manufacturing, engineering or printing. The approach gives us an edge over traditional high street banks, enabling us to develop a genuine understanding of our client’s business, to expedite loan decisions, and to provide long-term and ongoing advice and support.

So speed, flexibility, and unrivalled industry expertise make ABL a vital resource for any growing SME. Making full use of your balance sheet in this way is not just about providing a short-term lifeline. It should be viewed as an essential part of the SME’s financial toolkit: one that provides a fast and reliable source of working capital and the means to invest and grow

Case studies

VDC Group

£29 million turnover

VDC is the largest UK based independent optical disc replicator. Founded in 1982, it manufactures, replicates and distributes DVDs and CDs and Blu-rays. The company had a funding arrangement with a traditional high street lender, but needed additional support to expand the business. 

Close Brothers put together an ABL package worth £10 million, funding against the value of machinery and packaging equipment. The package also included invoice discounting.

Ash & Lacy

£24 million turnover

Ash & Lacy is a manufacturer of metal building materials and products. The company sought to expand rapidly into new product areas, and bring previously sub-contracted processes in-house.

Close Brothers put together a £7 million ABL package, which included online invoice discounting, to repay existing debt  and provide additional headroom for further investment.