Asset Based Lending feature with comments from James Hester, Regional Director

What effects did the recession have on asset financing and factoring?

“Our invoice finance, asset finance and asset based lending facilities experienced sustained demand through the economic cycle.”

Do you have any figures for the size of the asset finance market in the UK, and in Wales particularly?

“The latest quarterly figures released by the Asset Based Finance Association (ABFA) show that approximately 45,000 businesses are using the industry’s products and services, with Lloyds TSB Commercial Finance maintaining our leading market share position at over 22 per cent.

“Our team in Wales has a broad spread of trading business clients across a variety of industries and we continually increase our resource to match our existing customer’s evolving needs.”

What are companies looking for now regarding financing? How are providers responding to changing economic conditions?

“With the economy beginning to stabilise, businesses are looking to secure flexible asset based finance facilities which best match their medium to long-term growth strategy. This is exactly what invoice finance does, as well as meeting any immediate capital requirements.”

“One of the most common uses of asset based finance during the recession was to support distressed acquisitions and turnarounds and we worked with a significant number of the main professional advisers in the Welsh finance community to do so.

“We’re increasingly being called on to structure refinancing packages when an existing package is due to expire or is no longer suited to the company’s evolving requirements.

“So far during 2010, these deals have been structured distinctly differently to last year when trading and liquidity pressures converged to create urgent cash flow requirements to replace facilities which had become onerous.

“Given the difficulties many businesses have experienced during downturn, we’re also seeing demand for debtor insurance policies to be included alongside our funding packages.

“In addition, the best asset based finance providers are now offering funding under the EFG scheme to enable firms which have utilised their available security to take out additional loans of between £10,000 and £1 million.

“Those funders which have invested in client management and retention, and have a strong regional structure capable of making local credit decisions, are best positioned to gain market share as the economy recovers.”

If and when the economy improves will demand drop back?

“Not at all. Asset based finance is not only a viable form of financing during a downturn but is also crucial for businesses capitalising on post-recession opportunities.

“During the tougher times of the last two years, we saw firms concentrating on making their businesses leaner and those which were previously cash rich saw their capital base eroded. Therefore, lending against the value of their invoices and assets is an even more relevant and attractive option for companies looking at growth opportunities.”

Has the stigma once attached to them finally been laid to rest?

“Predominantly, yes. For those who have used asset based finance, it is the preferred method of financing and others in the know, such as advisors, are also very comfortable with the facilities.

“However, there is still a small minority of people who may not understand how invoice finance, asset finance and ABL work and therefore remain nervous about the products. For example, a company that trades with rural farmers may find that, since the farmers have not come across invoice finance, they may be sceptical about it.”

How do you see the asset financing market changing?

“Asset based finance has come a long way to becoming a mainstream form of finance and we expect that its flexibility will continue to ensure it is used in a variety of scenarios, particularly when other forms of funding are not as readily available.

“We expect asset based finance to continue to cement its popularity for businesses which require strong cash flow and access to working capital for M&A activity, private equity buyouts, refinancing, restructurings and funding for growth.”