A Bluffer’s Guide to Asset Based Lending for SMEs

Asset Based Lending for SMEs


With small to medium sized businesses becoming increasingly disillusioned with mainstream banking institutions still afraid to lend to them, there has been a real resurgence in appetite for alternative means to access business funding.

With recent findings suggesting that now is the time for SMEs to seek out growth opportunities, the demand from borrowers to solve cash flow and longer term funding problems is on the rise. Included in this resurgence is a shift towards asset finance methodology including asset based lending.

But what is it? Well, simply put, asset finance is based on assets including accounts receivables, property and stock, assets that are used as collateral against any borrowing. By effectively putting future revenue on the line, companies can gain access to money almost immediately. Typically via asset based lending, companies can access up to 90% of the value of outstanding invoices, as well as 80% on machinery and raw materials. It is therefore very popular amongst manufacturing firms, however many other industries are now turning to ABL.

In terms of positives, asset based lending has the potential to be a reliable, flexible source of funding for enterprises that are growing fast and require short term cash injections to fund new staff training and purchasing of equipment. Seasonal needs tend to hamper service industries, therefore these kinds of injections ensure that any positive growth isn’t stalled in the quieter months. On a larger more long term scale, asset finance can be utilised to fund international growth and acquisitions.

On the downside, lenders may not see invoices served to very small businesses or individuals as ‘eligible’, therefore limiting the amount of funding they can get access to. Asset loans cost more than a traditional bank loan, with interest rates varying sometimes unpredictably.

Having said this, the outlook for ABL is largely very positive. Industry thinkers are predicting increased activity across the board, with a package in excess of £5.5m agreed in October to assist a Midlands steel processing organisation with a management buyout.

Larger financial institutions, particularly in the US where the market is thriving, are able to offer far greater sums of money, up to $2bn in some cases. However these types of deals are the exception rather than the rule and asset based lending continues to be a popular way of raising short term funding to plug cash flow gaps for businesses across the UK.



I’m Mary Cummings, a ghostwriter, collaborator and all round word doctor. I help business owners write and publish business books; I'm also passionate about helping creative freelancers find work that they love - their work sweet spot with work on their terms, projects they love and clients who are a dream to work for.

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