Maximizing Cash Flow to Fund your Growth Strategy, Part 2
By Ian Watson, CEO North America, BFS - A Case Study on Using Assets for Working Capital and to Promote Growth
In part 1 of this series, we shared the findings of our 2016 Q2 Cash Flow Outlook and SME Confidence Survey which indicate that an increasing number of businesses are turning to asset based lending as an alternative to the traditional bank loan to take advantage of the value of their existing assets like accounts receivable, inventory, equipment and real estate. Now, we’ll explore a real-life example of a BFS client that has experienced measurable growth as a result.
How an ABL Facility Helped an Organic Baby Food Brand Bloom
The global baby food market is estimated to hit $72.7 billion by 2020, and prepared foods in a squeezable pouch make up a quickly growing segment of the market. The pioneer in this field was Sprout Organic Foods, an independent, privately owned company founded in 2008. Its founders wanted to develop a wholesome, organic baby food product that tasted better than anything else on the market. The result was baby food in a pouch that provided on-the-go convenience to parents. But keeping up with projected growth meant the company needed a certain level of liquidity.
In order to expand the product into new lines, the company partnered with a private equity partner who obtained an asset based lending (ABL) facility from Bibby Financial Services (BFS). As a private equity partner, BFS provides a $5.5 million dollar line to Sprout, with an option for an increase should it become necessary. So what does this mean for the company? As a manufacturer, the company already had assets that were the right fit for this type of funding product. The new credit facility means the company will have the cash liquidity it needs to support projected growth and new product lines.
Having been the first company to produce baby food in a pouch, it was only natural for Sprout to revolutionize the category it pioneered with new products, keeping ahead of its competition. After expanding its infant and toddler line and undertaking a full redesign of its packaging graphics early in 2016, the company introduced a new product line in the third quarter, reaching beyond the infant and toddler category to school-aged children. Sprout Foods continues to innovate in 2017, launching a new line of plant-based food products in March with the promise of expanding the line before the end of the year. Such innovation and the resulting momentum are only possible with the right kind of financing.
Is ABL right for your business?
An ABL facility isn’t a perfect fit for every organization but can often support companies working through a growth phase. A few thoughts for consideration:
- Asset based loans can provide a much needed source of cash for companies that are rapidly growing and may be outgrowing a traditional bank or cash flow lending arrangement.
- The flexible nature of an ABL facility means that the borrower can draw down funds as and when they are needed.
- Your ability to secure a line of credit through ABL depends on the quality of your assets, but this type of financing may be easier to obtain than traditional loans that require a history of profits and are laden with stiff financial covenants.
- Companies borrowing on an ABL basis often return to traditional bank financing once their business has stabilized and shows a history of improved operating results.
An asset based loan can be a powerful financing tool. Because the ABL lender considers a business’s strengths and assets when assessing its eligibility for funding, ABL offers greater opportunities than traditional bank-led finance, resulting in much needed help for organizations experiencing growing pains. Businesses of varying sizes and in a wide range of industries can benefit from the flexibility and more individualized approach that are trademarks of asset based lending.
In our next series of posts, we will explore more non-traditional funding options for businesses.
To learn more about Bibby Financial Services and how we can help your business, contact us today at firstname.lastname@example.org or 877.882.4229.
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.