Common “misconceptions” about asset-based lending (ABL) may be behind the latest research by Shawbrook, which found that 34 per cent of SMEs have no plans to use ABL for their business.

The lender’s research revealed that 29 per cent of SMEs are using an asset-based loan, while 23 per cent say they plan to use one in the future.

However, Oliver Wilson, head of asset-based lending at Shawbrook, noted that the 34 per cent with no intention to use this type of financing option might be “driven by the common misconceptions of this type of finance”, one of which is that ABL is “a last resort”, reserved for companies “in distress”.

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While Wilson acknowledged that ABL has “some of its heritage in turnaround”, meaning it remains an option for businesses “bouncing back from tough situations”, he added that it can benefit thriving businesses.

“By using multi asset structures like receivables, inventory, property and equipment as collateral, companies can often unlock more liquidity without disrupting their operations,” said Wilson. 

“With holistic structuring tailored to the business need, ABL provides structured financing for a variety of use cases.”

Wilson said that, for profitable SMEs, cashflow as well as assets can be leveraged together, to provide “a truly combined solution”, and that this “modern” approach to ABL can give SMEs the flexibility to fuel growth, make acquisitions, or manage cash flow effectively.

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He also busted the myth that ABL is “overly complex and time consuming”, citing the increased adoption of technology by lenders to evaluate assets and speed up deal processes, and suggesting that advisers can assist by providing collateral diligence earlier in the process, to avoid elongated timelines.

“Certainly, if you are a larger borrower, then the operational and structural options available bear no resemblance to the clunky, unsophisticated systems of old. Borrowing base facilities; flexible revolvers that build in fixed assets, as well as current assets and combination structures built against both the assets and the cash flows in a simple and light touch framework, can be achieved,” he said.

According to Shawbrook’s Wilson, the third “myth” is that ABL “leads to a loss of control” over a business or its assets.

He pointed out that, for almost any type of senior lending, borrowers have to provide an “all assets debenture” as security. 

“However, if using an ABL structure, whilst the specific assets may be ‘charged’ to the lender, this does not mean that the lender will be interfering in day to day operations or asserting any practical ‘control’ over your assets unless the business has failed and they are in recovery mode,” said Wilson.

“In many cases, it’s the very fact that the lender has assessed the assets, understands their value and has provided an ABL facility that leads to greater flexibility,” he added.

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