Articles
DEPENDABLE FINANCE THAT'S AN ASSET TO YOUR BUSINESS
Nick Robson, regional director, North East
The ability to quickly adapt to market conditions and capitalise on available opportunities is essential to the success of any business in Yorkshire, regardless of size or industry. Often freeing up the funds required to drive expansion, finance an acquisition or complete a buyout can be a challenge. Restricted cash flow frequently prevents ambitious businesses from fuelling the development needed to stay one step ahead of the competition. Increasingly, firms in the region are releasing the value tied up in outstanding invoices, plant, machinery, stock and property by using these assets to provide the rapid cash injections needed to drive business growth.
The umbrella term given to this type of leveraged finance is asset based lending (ABL). It has been popular in the US for over 50 years as it allows businesses to maintain a degree of flexibility not always possible with other forms of finance. We are seeing a growing trend towards companies in Yorkshire using it as an integral part of their financing arrangements.
ABL, which includes factoring and invoice discounting, is now a leading source of working capital finance for UK small to medium enterprises. It enables a company to fund the high debtor and stock levels associated with expansion by unlocking the potential of the assets on its balance sheet. Companies are finding that ABL can be tailored so that it releases the cash tied up in the business in a manner that closely matches strategic objectives and the rate and scale of expansion.
The increasing popularity of all forms of ABL has led to Lloyds TSB Commercial Finance bringing all of its services under one umbrella - the Commercial Finance brand. By uniting our asset based lending brands - Alex Lawrie Factors, CashFriday, Lloyds TSB Asset Finance and Lloyds TSB Commercial Finance - we are aiming to make it easier for businesses in Yorkshire to access the wide range of lending facilities available. This includes hire purchase and leasing products to fund assets in the form of new plant and vehicles. Through CashFriday we also provide payroll services and funding to the UK recruitment sector.
This form of finance has come to the fore as markets remain unpredictable and businesses try to maintain a degree of flexibility not always possible with loan or overdraft funding, which are invariably covenant driven. The ABL market has grown rapidly in recent years with figures from the Factors & Discounters Association (FDA) revealing that the turnover of businesses using invoice discounting grew 14 per cent in 2003 to £94.7billion, compared to £83 billion in 2002. In 2003 Lloyds TSB Commercial Finance reported an increase in advances of 9.8 per cent to £2 billion, across its 14,000 ABL clients.
An emerging trend is for businesses to use assets to fund mergers, acquisitions and management buyouts (MBOs). ABL gives access to large scale funding without having some of the restrictions senior lenders place. Despite tough UK economic conditions, the Yorkshire office of Lloyds TSB Commercial Finance alone completed seven MBOs in 2003. The high profile MBOs of Birkby's Plastics, Envirohold and HS Atec were part-financed by ABL facilities. We work hard with management teams to structure the optimum set of facilities to provide the headroom needed to react quickly to any threats or opportunities that arise. Similarly, owner operated businesses entering into refinancing deals are finding that this form of finance allows them to release some equity whilst still maintaining ownership and control. As the deals market continues to gather pace we are expecting to see increasing numbers of buyouts facilitated by packages where ABL sits alongside mezzanine, equity or deferred consideration.
ABL is also commonly used by businesses that are threatened by a cash flow crisis. Turnaround businesses can find it difficult to raise traditional funding because some banks lack confidence in the ability of businesses to produce the cash needed to repay the debt, and frequently want to reduce rather than increase their exposure. ABL provides the cash injection needed to kick start the reinvestment and gives the freedom to quickly make the strategic decisions which will protect the core business. The increased liquidity helps businesses to capitalise on available opportunities and puts them in a position to quickly move forward when the market improves.
ABL's flexibility, combined with the speed with which decisions can be made, has ensured that it is increasingly being considered as a real alternative to other forms of finance. We look at the future of a business, not just the immediate past, and make commercial lending decisions based on the ability of management to make its business strategy work. ABL will continue to grow in popularity as ambitious businesses in Yorkshire look at ways of effectively utilising their assets in order to drive investment and expansion.
Lloyds TSB Commercial Finance is part of the Lloyds TSB Group plc.
