Asset-based lending is increasingly being used to boost working capital
Martin Cooper, director and head of large and major corporate at Lloyds TSB Commercial Finance, examines the wealth of financing options available to SME and mid-tier recycling and waste firms, and how, with the support of these adaptable facilities, companies can improve their liquidity and position themselves for growth in the post-recessionary environment.
In recent years, the issue of green waste disposal has rapidly scaled the corporate agenda. Driven by EU landfill decommissioning legislation, UK government initiatives to improve waste disposal amongst SMEs, and the need to have robust, environmentally responsible governance; companies are increasingly engaging recycling and waste management providers to help them realise their green credentials and significant long-term cost savings.
The market for recycling in the UK is growing following the recessionary period and, while there are a number of large industry players who have been consolidating, it continues to be largely fragmented, with many SMEs servicing the majority of firms.
Green opportunities
The recycling industry has already come a long way in a short time. In 2009, 52 per cent of commercial and industrial waste was recycled, compared with just 42 per cent in 2002/03, according to the Department for Environment, Food and Rural Affairs (DEFRA). This statistic is likely only to increase, as the UK continues to become a nation of recyclers, both in the consumer and corporate arenas.
For waste management services companies, this climate presents notable opportunities to grow with the wider market, providing they can continue to innovate and, crucially, avoid the cashflow constraints which can hamper fast-expanding businesses’ development.
Adaptable financing solutions
Asset based finance (ABF), which allows firms to leverage both their current and fixed assets – including invoices, stock, plant and machinery, and property – is increasingly being used by recycling companies at all levels to boost working capital, as they look to take advantage of positive market dynamics.
In recent years, this form of funding has demonstrated its suitability to meet greatly varying capital requirements by allowing firms access to finance based on the amount, quality and liquidity of their tangible asset bases. This scalability means that ABF is well matched to fast growing waste management providers in that, the more success a firm enjoys, the more its assets grow and the more working capital it can release to invest in new opportunities.
From an operational standpoint, ABF facilities can bring practical benefits to businesses that deploy them, particularly to young companies that may have limited resources. The funding can focus companies on the quality of their working capital cycle, ensuring that they focus on collecting the cash for work already completed whilst keeping stock levels to the minimum.
At Lloyds TSB Commercial Finance, we provide a range of ABF products to enable green companies to grow. Working in collaboration with the wider Lloyds Banking Group, including Lloyds TSB Commercial, which provides day to day banking facilities, loans and overdrafts to SMEs across the country, we are able to provide clients with the most suitable funding solutions to allow them to achieve growth into new markets, improve operational efficiency by buying new plant and machinery, and boost capacity.
This additional capital is also highly applicable to innovative recycling firms that are keen to upscale and invest in research and development to produce intelligent processing systems which turn waste into valuable resources.
Capitalising on positive sector dynamics
Com-Vert, a Northumberland-based recycling and composting business, is one such example. The firm takes garden waste from local authorities, including Sunderland City Council, companies and gardeners, and recycles it to produce compost which is approved by the Soil Association for use on organic farms.
The company is also eyeing a move into the bio-mass market: converting garden waste into bio-fuels which can be used as a carbon neutral alternative to fossil fuels.
To capitalise on growing demand for its services and branch out into the production of bio-fuels, Com-Vert turned to Lloyds TSB Commercial Finance. We devised a factoring facility – which advances up to 90 per cent of firms’ issued invoices – which boosted cash flow and allowed it to move to a new, larger site.
We were introduced to the business by Lloyds TSB Commercial, which provided the firm with a £125,000 Enterprise Finance Guarantee (EFG) loan.
The company’s new recycling centre has improved transport links, reduced road miles and enabled more advanced machinery to increase output in-line with demand.
Dan Robinson, managing director at Com-Vert – who set up the firm with his farther Joe in 2002 to diversify the family farm’s output – said at the time of funding: “The farm has been in our family for 150 years and, as the agriculture market evolves and becomes more competitive, we spotted an opportunity to break into the organic recycling market, diversifying our output and increasing turnover.
“The funding from Lloyds TSB has ensured Com-Vert is in an excellent position for future growth and we hope to be a pioneering business in the bio-fuels market.”
Realising growth opportunities
Corporate social responsibility measures and robust legislation are creating highly favorable conditions for recyclers to start-up or expand existing operations, providing they can overcome cashflow challenges and access growth finance against an economic backdrop which, whilst gradually improving, remains challenging.
Whether it is to facilitate a firm’s investment in efficient equipment, develop new processes or shore-up cashflow to encourage growth, at Lloyds TSB, we are committed to helping waste management businesses conquer their working capital challenges and achieve their growth potential.