Asset-Backed Finance: what is it and how does it work?Published on 30th July 2018 2018-07-30T22:37:10+00:00 - Last update on 17th March 2020 2020-03-17T15:52:58+00:00
In order for any business to operate effectively and maintain a reliable rate of growth, having access to sufficient amounts of capital is something you can’t do without. It enables you to support everything from vital growth products and driving awareness to reinforcing your bottom line. However, using your own cash reserves may deprive you of the funds you’ll need as your business continues to develop. So if you need to finance new assets, rather than holding back, applying for an asset-backed finance solution could enable you to receive a lump sum and enhance the capabilities of your business. If you need to raise capital, here’s what you need to know about Asset-Backed Finance.
What does Asset-Backed Finance mean?
Whenever someone mentions the term ‘Asset-Backed Finance’ they are referring to how the agreement is secured. If a finance solution is described as being secured, it involves using your company’s assets in order to provide lenders with collateral. So, depending on the type of finance agreement you’re considering, collateral could be established using anything from your company’s capital, invoices, equipment, machinery, vehicles, property and real estate to intangible asset finance.
What does Asset-Backed Finance entail?
Asset-Backed Finance means using your business’ assets as collateral, which gives lenders confidence in your ability to afford and repay the agreement on time. So, although using such products could allow you to receive a larger lump sum and earn a more favourable interest rate (compared to an unsecured agreement), it does, in fact, mean putting your assets at risk. So if your business defaults on repayments or becomes insolvent during the agreement, lenders will have the right to repossess those assets in order to recover as much of the capital they’re owed as possible. For that reason, lenders generally prefer to use assets that aren’t subject to any existing finance agreements, and they’ll very rarely deviate from that policy, as this avoids disputes with other lenders regarding who gets what should your business enter financial difficulty. However, if the agreement involves unpaid business-to-business (B2B) invoices, the capital that they contain is used as collateral. Naturally, you want to your client to settle the debt that they owe, but if that doesn’t happen for any reason the lender may require you to pay it instead.
What can Asset-Backed Finance be used for?
Asset-Backed Finance describes a wide range of finance products such as Secured Finance, Bridging Loans, Invoice Finance, Commercial Mortgages, Asset Finance, Intangible Asset Finance and Refinance. Although some of these products are suitable for specific circumstances, such as property, you may well find is that many Asset-Backed Finance solutions aren’t subject to any usage restrictions. Therefore, Asset-Backed Finance could be used to support anything from new equipment, property purchases, renovations, refurbishments, working capital expenses, IT finance and growth projects to cash injections.
Could your business benefit from an Asset-Backed Finance?
No matter what stage your business is currently at, making sure that you have enough cash at hand to support your vision is vital. However, acquiring it in sufficient quantities can prove challenging, especially if you’re a developing SME. But if your business owns sufficient assets, you could qualify for an Asset-Backed Finance agreement that may help you raise the capital you require. All you have to do is source an agreement that’s suitable for your goals from a lender you can trust.
At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to raise capital for your business, apply for an Asset-Backed Finance solution today or find out more with Rangewell. We also help accountants and IFAs help their clients with finance too - whatever their funding need, from Invoice and Whole Ledger Finance to Working Capital Finance.
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