5 balance sheet assets you can leverage

Are you frustrated by a lack of cash?

You may already have a bank overdraft or a loan, but what if it isn’t enough?

Many business owners aren’t aware of asset based lending, and exactly which assets on the company balance sheet can be leveraged to generate working capital.

In this article, I summarise the main considerations of each asset class.

Receivables (invoice finance)

A very common form of financing for UK businesses that meet the qualifying criteria (lenders prefer, but are not limited to, a ‘sell and forget’ type scenario.) You can receive up to 90 per cent of your unpaid invoices subject to:

• Contractual invoices
  Are the invoices divisible and collectable?

• Disputed invoices 
  What is preventing the customer from paying?

• Ageing invoices 
  Is the customer unwilling or unable to pay?

• Dilution of invoices
  Could a customer offset against the invoice?

• Sale or return or warranties 
  Are there contractual clauses preventing payment in full?

Inventory

Whilst the traditional UK lenders often view inventory as more challenging to leverage, the emerging ABL’s and ABL debt funds focus heavily here to differentiate themselves. Lenders primarily consider the speed and cost of converting inventory into cash when considering whether to lend; this can be driven by:

• Stock mix
  Is it raw materials, work in progress or finished goods and how quickly can it be sold?

• Terms of supply
  Could suppliers’ retention of title clauses be enforced?

• Seasonality & branded goods
  Could this prevent an accelerated sale?

• Landlords waiver
  Can the inventory be accessed?

• Stock management system
  Can items be readily identified and located?

The recent deferment of HMRC’s secondary preferential status ensures lenders remain open to finance this asset class, subject to the underlying cost vs benefit. Some lenders may also consider a heightened advance rate against the receivables by using the inventory as additional security.

Plant & Machinery

Often considered more straight forward to finance based on the individual assets purchase price or current value, useful life and residual value. Lenders will consider:

• Hard assetsi.e. plant, machinery, equipment, vehicles

• Soft assets
  i.e. IT software, production equipment, office fit outs

• New or used?
  What could be the resale value, if any?

• Are the assets readily identifiable?
  Ensures the lender has security.

• Are the assets mobile or in situ?
  What is the recovery cost?

Lenders will consider financing from new to ease cash flow, as well as the re-financing of existing assets to generate new money. Asset schedules can often allow lenders to undertake a quick desktop valuation and provide an early indication of facility terms.

Property

Similarly, to inventory, lenders are open to using property as additional security underpinning working capital funding, or to enhance short term liquidity.

Lenders will consider commercial premises, investment property and land, focussing on:

• Is the property freehold or leasehold?
  Freehold or long lease is preferable.

• Has the property been recently valued?
  Accelerates the process.

• What is the use of the property?
  Business use is ideal.

• What is the condition of the property?

• Is there associated planning permission on the land/property given an alternative use?

Intellectual property and trademarks

Historically, balance sheet intangibles have often fallen outside the basket of assets considered for funding. However, among others, emerging ABL debt funds have a progressive approach towards this asset class including:

• Patents

• Trademarks

• Copyright

• Licences

• Hidden secrets

Specialist valuation agents are adept in this arena, and lenders may view these assets critical to underpinning future cash flows or as carrying realisable value as part of a sale.

Are you considering asset based lending?

We can help - book a telephone consultation today to discuss your options.