distributed within city a.m. asset financedoc.mediaplanet.com/all_projects/11196.pdf · banks...
TRANSCRIPT
No. 3 / Nov. ’12Distributed within City A.M.
AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET
John Bevan dispells some of the many myths surrounding asset based fi nance
UNDERSTAND THE ALTERNATIVE
FUNDING OPTION
Bright futureThe recent research that highlights the potential of the industry
Business growthMore small businesses are reaping the rewards
Understanding the benefi ts Know how to make the most of your assets
Managing riskIs asset fi nance a more secure way to raise capital?
PH
OT
O: P
RIV
AT
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ASSET FINANCE
Global Investment Banking Analyst/Associate ProgrammeFull-Time (5 weeks) or Part-Time (5 weekends) work experience
in Partnership with
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2 · NOVEMBER 2012 AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET
The Asset Based Finance Association is pleased to support this publication. Our members have been providing invoice finance and asset based lending — ‘asset based finance’ — to businesses in the UK and Ireland for over 50 years.
The popularity of asset based fi -nance has steadily grown in recent years. The latest quarterly statis-tics for April to June 2012 show that the number of businesses using the products increased by 4 per cent, reaching nearly 43,000. Total ad-vances to businesses reached £16 bil-lion in Q2 2012 — an increase of 2 per cent. And with an additional £7.3 bil-lion of funding available there is po-tential for the industry to do more.
Managing risksAsset based fi nance products are available throughout the
economic cycle. The nature of the products enables clients to be off ered greater levels of fi nance whilst still allowing the funder to appropriately manage their risks.
Asset based fi nance is normally provided on the basis of outstanding trade debts and funding decisions are based on the underlying strength of the business rather than the user’s balance sheet. With funding directly
linked to real growth in the business, clients do not have to rearrange fund-ing lines and can instead concentrate on managing their business.
Exceeding expectationsAsset based fi nance is an in-creasingly important part of the
commercial fi nance landscape and it is the industry’s ability and willing-ness to fund which is its strength. The expectations of clients and potential clients are evolving and the industry is moving to ensure it can meet and exceed those expectations. There will be some exciting developments in 2013, not least a refreshed industry Code and other initiatives to make the products even more accessible. This industry has a proud history and an even brighter future.
Finance & Leasing Association (FLA) members lease wind turbines, train rolling stock and many other multi-million pound items, but they play an even more important role across the small business sector. Around a third of small UK businesses that borrow funds are using asset finance.
In these straitened times, with banks seemingly reluctant to lend, businesses are looking at other potential sources of fund-ing and asset finance is proving a popular option.
Julian Rose, Head of Asset Fi-nance at the FLA said: “Increas-ingly, small businesses want to
conserve their cash, so when they look to invest, whether that’s to remain competitive or grow, they are looking at leasing to help them to get the equipment quick-ly and affordably.’’
Security and flexibilityThere are many other advan-tages for businesses. The lease
is secured wholly or largely on the asset being fi nanced, reducing the requirement for additional collat-eral; it’s secure for the user, as the fi nance cannot be recalled during the life of the agreement; and the business can choose to transfer the residual value risk of the equip-ment to the leasing company, giv-ing them more fl exibility to re-place or update equipment at the end of the lease period.
Availability and complianceRose added, “Asset finance is widely available through a
network of around 5,000 equip-ment dealers and hundreds of brokers, as well as direct from fi-nance companies.”
Most companies providing direct Asset Finance in the UK are mem-bers of the FLA which means they have to comply with the stringent business standards set out in the FLA’s Business Code of Conduct.
CHALLENGES
Asset based fi nance, a vital part of the business funding landscape ‘It makes sense
to consider hire purchase if the asset to be fi nanced has a low rate of technical obsolescence’
George Ashworth,Managing director asset fi nance, Aldermore
WE RECOMMEND
PAGE 4
ASSET FINANCE, 3RD EDITION, NOVEMBER 2012
Managing Director: Chris EmbersonEditorial and Production Manager: Faye GodfreyBusiness Development Manager Dominic Webber
Responsible for this issue:Project Manager: Lee HarrisonPhone: 020 7665 4441E-mail: [email protected]
Distributed with: City A.M.
Mediaplanet contact information: Phone: 020 7665 4400Fax: 020 7665 4419E-mail: [email protected]
Find Mediaplanet UK on:
We make our readers succeed!
Mediaplanet’s business is to create new customers for our advertisers by pro-viding readers with high-quality editorial content that motivates them to act. Julian Rose,
Head of Asset Finance, FLA
To access BETTER BUSINESS FUNDING call 0800 91 95 92
and quote ref CA01www.betterbusinessfundinguk.com
You too could enjoy BETTER BUSINESS Your Invoice Finance Experts
Kate Sharp, Chief Executive, Asset Based Finance Association (ABFA)
NOVEMBER 2012 · 3AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET
The shortage of available funding and lengthy application process-es have left SME’s and individu-als with a growing problem of not just gaining access to money but also having it delivered in a time frame that suits their needs.
Personal asset loan specialist borro focuses on providing liquid-ity from luxury personal assets such as fine art, antiques, jewel-lery, luxury watches, high end cars and more. Launched in the UK in 2008 and in the US in January 2012, borro has therefore defined a new category of lending.
Alternative fundingWith banks still reluctant to lend, borro provides a much needed al-ternative for funding, offering loans from £1,000 — £1 million which can be advanced within 24
hours with no credit checks.“People are undoubtedly look-
ing at alternative ways to access fi-nance,” says Paul Aitken, CEO, bor-ro. “Our recent research showed that the wealthy are turning to their assets more and more to ac-cess liquidity.” Indeed, according to recent company research, the ma-jority of borro customers use the loan to facilitate a business trans-action or opportunity. “Over 60 per cent of borro’s customers are small business owners who have seized the opportunity to gain finance through loans offered against their personal assets. For them, this has proven to be a quick and effective way of helping their business,”
Aitken adds. borro has also firm-ly established itself in the finan-cial intermediary sector winning numerous industry awards in-cluding the prestigious Alterna-tive Lender of the Year by Credit Today for two consecutive years in 2011 and 2012. Intermediaries have come to realise borro as a viable al-ternative to address their client’s short term borrowing needs.
The business is growing fast and borro recently launched two further products in the market. The first is consignment loans which are specifically tailored for clients looking to sell person-al assets at auction or through private treaty. The second is a
valuation service, carried out in the client’s home by specialists who have worked for Sotheby’s, Bonhams and Christie’s.
Market confidenceThe business which has seen sig-nificant growth over the last three years looks set to fuel its growth in the UK and US by securing £16 million in funding, led by Canaan Partners and a further £20 million from Octopus Investments.
Aitken, said: “These new fund-ing lines represents the confidence the market has in our business. It is another exciting step for borro,
and will allow us meet the demand from clients for our unique lend-ing proposition, therefore maxi-mizing our opportunity to become the leading global online liquidity marketplace for luxury personal assets. We have invested heavily in our UK and US businesses with the recent equity injection.”
Finding a better way to borroCOMMERCIAL FEATURE
■ Are asset loans only suitable for corporate clients to take out? No — individuals can use them, and many do so as a means to fund their business through specialist lenders such as borro.
At Baker Tilly we believe in teamwork todeliver a winning service
Head of Asset Based Lending ServicesMobile: 07827 814920Email: [email protected]
An independent member of Baker Tilly International
www.bakertilly.co.uk
Proud sponsors of the6th Annual ConferenceManchester 2012
‘People are undoubtedly looking at alternative ways to access finance’
Paul Aitken, CEO, borro
For more information call: 0808 163 9402Visit: borro.com/cityamChancery House, 53-64 Chancery Lane, WC2A 1QU
4 · NOVEMBER 2012 AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET
If a company wants to make use of asset finance, there are es-sentially three types of prod-ucts: leasing, hire purchase and, to a lesser extent, loans. “There are two types of leasing: finance leasing and operating leasing,” says George Ashworth, Managing Director of asset finance at Alder-more. “A finance lease is a lease designed to amortise in full the capital cost of the equipment and provide the lessor with a profit.
An operating lease does not gen-erally amortise in full the capi-tal cost of the equipment, but the lessor retains a residual value, and the lessor looks to the sale of the asset at some future date to be made financially whole.”
Wealth creationA company might choose to fi-nance by way of an operating lease when the asset to be leased doesn’t have strategic financial importance within the business — for example, a fork life truck. The operation may grind to a halt without it in logistical terms but it is not a wealth creating asset.
On the other hand, a customer might want to fully amortise the cost of an asset. He can do so via a finance lease or hire purchase ar-rangement and in so doing cap-ture either all or the vast major-ity of any sale proceeds when the asset is eventually sold.
Valuable goodsA hire purchase agreement is suitable when a customer wants to take “tax ownership” of the as-set from day one and ultimately
legally own the asset. “It makes sense to consider hire purchase if the asset to be financed has a low rate of technical obsolescence. As a result, the asset is very likely to generate positive sale proceeds,” says Ashworth.
Loans also feature, although they are less common. They can be se-cured or un-secured: “Small businesses are bet-ter served by unse-cured loans when-ever possible as they are not having to stand behind the loan as surety. Security is generally in the form of a debenture or a chat-tel mortgage.” As an in-vestment vehicle asset finance is generally se-cured on the assets that are financed.
George Ashworth,Managing director asset fi nance, Aldermore
CHOOSING THE RIGHT FORM OF FUNDING
■ Question: Are there many asset fi nance products on the market?
■ Answer: Yes, and companies should choose which one they will make use of by what their business needs.
NEWS
VIRGINIA BLACKBURN
NOVEMBER 2012 · 5AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET
Although the asset based finance market is now a mature one, it is still rife with misunderstanding. “A lot of misconceptions relate to the his-toric use of the product,” says John Bevan, Head of trade and working capital in the UK and Ireland at Bar-clays and a past chairman of the As-set Based Finance Association (AB-FA). “Total funding through asset based lending is now just under £16 billion with over 41,000 companies using the facilities.”
John Bevan is keen to dispel myths, starting with the fear that the asset based lender will have ac-cess to their invoice book and will
allow them to assert too much con-trol. “Clients can outsource their sales ledger management and many clients find this a significant bene-fit,” he says. “However, the business can also choose to maintain full control over their sales ledger by us-ing invoice discounting - and mere-ly releasing the working capital tied up in their debtor book.”
Another misconception is that this type of lending is expensive: in fact interest rates charged are com-petitive with more traditional types of funding.
Then there is the claim that on-ly failing companies use it, patent-ly untrue given that ABFA is gain-ing membership and the volume of client sales, which are managed by members of ABFA, grew by 9 per cent in the last 12 months. Increas-ingly, larger businesses regular-ly turn to this type of finance and growth of this type of funding far outperforms other forms of debt.
“One of the essential points about it is the transparency,” says John Bevan. And he points out that it can be extremely beneficial for a com-pany to have a lender who has a close insight into the day to day run-ning of the business. The lender can often spot potential issues with a client’s working capital and provide assistance before these arise.
Removing the myths about asset finance
VIRGINIA BLACKBURN
MISCONCEPTIONS
MAKE THE RIGHT CHOICEIt is important to understand which form of funding will work best for your businessPHOTO: SHUTTERSTOCK
John BevanHead of trade and working capital, UK and Ireland, Barclays
Business is finally booming againIt’s official: Britain’s out of recession, with the economy growing by 1 per cent in the three months from July to September. And as the economy recovers, the asset finance industry is equally able to help companies benefit as their lending facilities grow with the companies.
“Businesses tend to fail on the way out of a recession, not the way in,” says Matthew Haw, partner at Baker Tilly. “They need working capital, which traditional lenders may be re-luctant to supply, and invoice discounting provides that.”
Of course, asset based lend-ers can also lend against as-sets such as stock figures and plant and machinery, and as a business grows, it will have more stock to lend against. “If you go from selling £750,000 a month to selling £1 million a month, your purchasing needs will grow, but you will still not have got paid,” explains Haw. “But this way your working cap-ital can grow as quickly as your sales.” And as companies grow, of course, so the economy con-tinues to prosper, thus creating a virtuous circle, whereby the economy continues to improve.
VIRGINIA BLACKBURN
■ Question: Why are there so many misconceptions about the asset finance market?
■ Answer: Because some common misunderstandings mean businesses do not realise how cost effective and efficient it can be.
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6 · NOVEMBER 2012 AN INDEPENDENT SUPPLEMENT BY MEDIAPLANET
INSPIRATION
Making the most of your assets
FUNDING SOLUTIONAsset based finance is a viable alternative to conventional funding for businessesPHOTO: SHUTTERSTOCK
Asset based fi nance is surprisingly still a much-misunderstood prod-uct, but it is also one of the best ways for a company to fi nance it-self during a period of change, such as expansion, a change of ownership, an MBO or a turna-round period in a company’s for-tunes. Corporate Britain is wak-ing up to this: according to fi gures from the Asset Based Finance As-sociation (ABFA), no fewer than 43,000 businesses now use asset based lending involving invoice fi nance, and total lending in the UK is now £16 billion, with a third of this to companies with a turno-ver of more than £50 million. As-set-based fi nance is very much a viable option for all businesses, no matter what their size.
“In recent years asset based fi -nance has become the fi rst port of call for many corporate fi nance advisors particularly with trans-actions and when working with
private equity, as they now see risk in the traditional providers of debt fi nance,” says Steve Mer-chant, Head of asset based lend-ing services at Baker Tilly. “Ma-ny believe there is a greater risk that banks will pull out of provid-ing the debt, whereas asset based lending has a strong track record of delivering.”
Know your optionsAt its simplest, asset based lending involves invoice fi nance, or factor-ing, whereby a company borrows against, typically, 70 per cent to 85 per cent of the value of its invoices. The level of service the lender pro-vides can vary enormously, from straightforward cash advances to managing the sales ledger, provid-ing collection services and insur-ance, which may be more expen-sive, but also absolves the borrow-er from more of the risk.
As it has developed, asset based lenders (ABLs) will now advance loans against much more, in-cluding inventory, plant and ma-chinery and property, as well as, when appropriate, more esoter-ic assets such as branding. Some ABLs also have the capability to offer a cash flow advance along-side asset based facilities. The business involved can expect to pay base rate plus two to three basis points, together with a
service charge, with the cost depending on the strength of the borrower and any if more services are added on.
“The quality of the organ-isations and their people involved continues to im-press and improve, and there are now many ma-jor players and many new entrants into the market,” says Merchant. “Whereasonce it was an alterna-tive source if you couldn’t achieve funding in the con-ventional way, through, for ex-ample, loans, it is now regarded as the first port of call.”
There are many advantag-es that cannot be found in other forms of fi nancing. A bank might suddenly withdraw an overdraft, but it is very unlikely to withdraw an asset based facility if the un-derlying asset is still in place. “An asset based lender closely moni-tors the security position of the company, which makes it easier to help through diffi cult times,” says Merchant. And while an overdraft or loan tends to be a fi xed amount, the as-set based facility can grow as the business expands.
VIRGINIA BLACKBURN
SHOWCASE
■ Question: How can asset based fi nance help many growing companies as an alternative to loans or overdrafts?
■ Answer: By providing a funding solution that can actually increase at the same rate as the cash fl ow needs of the business.
Steve Merchant, Head of asset based lending services, Baker Tilly
NEWS IN BRIEF
Edward Winterton, Commercial Director, Bibby Financial Services
Invoice finance helping SMEs to grow their business
■ Of all the challenges facing small and medium-sized busi-nesses generating cash and keeping it fl owing can be two of the toughest. And of course many SMEs have found condi-tions in recent years even more challenging.
With the emphasis now fi rmly on restoring economic growth following long years of recession, many business own-ers are looking at alternative forms of funding, such as asset based fi nance or invoice fi nance.
Invoice finance helps to bridge the cash fl ow gap be-tween raising an invoice and getting paid, giving business-es an immediate cash-injection and then an on-going supply of working capital against the val-ue of outstanding customer in-voices as they are raised.
By ensuring the business has a stable cash fl ow in place, the owner can focus on the job of running and growing their business and does not have the burden of extra business debt such as a loan.
Managing the business cycle
■ Many fi rms like the fl exibil-ity off ered by invoice fi nance as it can help them to manage the peaks and troughs most busi-nesses experience, without hav-ing to renegotiate long-term fi -nancial arrangements.
As a form of funding for busi-nesses, the invoice fi nance sec-tor has seen a signifi cant increase in the number of SMEs looking to use this type of funding in order to help them grow their business.
The latest fi gures from the trade body Asset Based Finance Association, show that on aver-age businesses with invoice fi -nance in place have seen turn-over increase in the fi rst two quarters of the year, providing real support for fi rms looking to grow their business.
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