Asset-based finance is a big deal these days. Since the financial crash of 2008, banks have tightened their loan criteria considerably and become much more risk averse, so that SMEs are turning to other sources of financing.
As a result, the asset-based credit index increased by 14% in the second quarter of this year in the United States and asset-based lending in the United Kingdom and Ireland have increased by more than 8 billion pounds in the last ten years. to a new high of £ 22.2 billion in the last quarter of 2016. The bulk of these loans were made through bill financing – an extremely innovative solution that can tame problematic cash flow forever .
What is asset-based finance?
Simply put, asset-based financing involves borrowing against collateral held by your company. Because the loan is secured, the risk is reduced for the lender, which greatly increases your chances of being accepted – and making you pay a competitive rate of interest.
Most borrowers choose asset-based financing because they have struggled to be accepted for a bank loan, or have found themselves facing high interest rates or a process complicated approval. In many cases, companies may have a short trading history or a compromised credit score, both of which can be huge red flags at a bank.
What can I borrow?
Virtually anything. Even if your turnover and profitability are not excellent, provided your company has valuable assets and ambitious (but realistic) plans for the future, there is a good chance that An alternative lender accepts you. You can borrow on your premises, your factory, your equipment, even in stock – or with invoice factoring and discounting, you can borrow on the value of your bills, right from the moment you Emit them.
Presentation of factoring and discounting of invoices
When you sign up for factoring or discounting, lenders generally allow you to borrow up to 85% of the value of the bills you issue, the repayment being done when your customers pay you.
With factoring, the finance company will assign experienced credit control professionals to guarantee an advance payment, thereby minimizing the interest you pay, while with the discount you keep control of your own debit register.
The option that suits you best will depend on the strength of your credit control team – for small businesses, factoring can effectively outsource all that work, although some companies may not be able to comfortable with their clients dealing with unpaid bills.
What are the advantages and disadvantages?
What's good with factoring and discounting invoices, is that they can sort out liquidity problems for good – eliminating problems caused by customers late payment.
They also provide a quick way to access money, while other forms of asset – based lending require fair due diligence. On the downside, the interest rate is usually a bit higher than for a bank loan or conventional asset-based financing, and of course, factoring and discounting bills are only available only for public enterprises.
However, if you often have trouble paying your bills, this may well be the way to go – that's why factoring and discounting bills are worthwhile today. 2,355 billion euros a year.
Author: Carl Faulds General Manager of Cashsolv Offers advice and alternative financial support to overcome problems cash. . S ee how Cashsolv can help provide fast financing and ensure a positive future for your business. Follow @cashsolv on Twitter .