Maximizing Cash Flow to Fund your Growth Strategy, Part 1
Ian Watson - January 18, 2017
How to Use Your Assets for Working Capital and Promote Growth
Your business is growing at an exponential rate. That’s good news, right? Business optimism in the U.S. is on the rise and the fact that business owners are focusing on growth is a positive sign. But as they say, it takes money to make money. In its 2016 Q2 Cash Flow Outlook and SME Confidence Survey, Bibby Financial Services found that 74 percent of business decision makers were planning to look for funding in the next 12 months, with more than half of those needing the cash to fund growth. Although the traditional bank loan is still a popular choice for business owners, there are other more flexible ways to accelerate and increase cash flow. Did you know you can tap into your company’s liquid assets to create the necessary cash flow and liquidity to fund the next phase of development?
Emphasis on Growth, Equipment and Technology Driving Business Funding Decisions
When forced to choose between the ‘must-have’ and ‘nice-to-have’ needs for working capital, decision makers often look at uses that will keep them on track for growth, including technology, new product development and equipment upgrades. However, these growth essentials come with a price tag that can leave some enterprises with the need to seek an outside source of funding to stay ahead of the curve.
While many think asset based lending (ABL) is only suitable for businesses experiencing reorganization, financial decision makers are increasingly exploring ABL as a funding solution for growth strategy investments. Asset based lending is an increasingly popular form of financing among companies in the retail, manufacturing, wholesale/distribution and service industries. Simply put, an asset based loan is a revolving line of credit, often combined with a term loan, which uses the assets of your company as collateral. Such assets might include accounts receivable, inventory, equipment or real estate.
One third of respondents to the 2016 Q2 Cash Flow Outlook and SME Confidence Survey stated that they had used ABL as a means of finance during the past 12 months. Further, according to the Commercial Finance Association, there were $218.3 billion dollars in ABL credit line commitments in 2015, an increase of 7 percent over 2014, whereas US mid-market new-issue bank loan volume was down 25% in 2015 when compared with 2014.
How can ABL help fund your growth strategy and what can you expect in return?
As a source of ready cash, ABL solves a fundamental problem for many businesses: slow or insufficient cash flow. Regardless of size, which can vary significantly from lender to lender, an ABL credit facility ensures that your organization has working capital when needed. Positive cash flow is an essential component of any growth strategy.
Generally, independently owned lenders who offer ABL tend to be more flexible than banks, because they place more importance on collateral values than on an organization’s balance sheet or financial operating history. This flexibility is critical for organizations working through a growth period or experiencing a transitional period such as a recent acquisition or reorganization.
ABL providers generally have very close working relationship with their customers. As a business decision maker, you should do your due diligence to get to know your potential lending partner before you make a commitment. Understand where your account will fit in to their larger business philosophy and how long they’ve been funding companies like yours. Try to get a sense of how you can work together to achieve success. Keep in mind that not all lenders think alike. Traditional asset-based lenders focus more on your company’s assets, provide more flexibility and will require fewer financial covenants. Other lenders could put heavier emphasis on cash flow than on your company’s assets, providing lending terms that may not provide the funds needed to help with growth and transitional phases.
In Part 2 of our series, we’ll share about how an ABL facility helped an organic baby food brand bloom and explore whether ABL might be right for your business.
About Bibby Financial Services
Bibby Financial Services is a leading independent financial services partner to more than 10,250 businesses worldwide providing more than $1.25 billion in funding annually and handling $11.6 billion in annual client turnover globally. With over 44 operations in 13 countries spanning Europe, North America and Asia, we provide asset based lending and factoring solutions to help businesses grow in domestic and international markets. Established in 2001, Bibby Financial Services North America has seven offices in the U.S. and Canada that support businesses in virtually any industry. We hold memberships in the Commercial Finance Association, the International Factoring Association, and the American Finance Association. Bibby Financial Services is part of Bibby Line Group (BLG), a diverse and forward-looking family business with over 200 years’ experience of providing personal, responsive and flexible customer solutions. To find out more about Bibby USA and Bibby Canada, please visit www.bibbyusa.com or www.bibbycanada.ca.