December 10th, 2020
Definition: Asset-based finance is a specialized method of providing companies with working capital and term loans that use accounts receivable, inventory, machinery, equipment, or real estate as collateral. It is essentially any loan to a company that is secured by one of the company's assets.
In asset-based financing, the loan is secured by the assets of the borrower. Examples of assets that can be used to secure a loan include accounts receivable, inventory, marketable securities, and property, plant, and equipment (PP&E). Companies in return can get working capital, term loans, a revolving line of credit or to meet specific short-term cash needs.
Loan Amount: Asset-based lending commonly uses the Loan-to-Value ratio (LTV) metrics to determine loan amount. The loan-to-value ratio depends on the type of asset – lenders are generally willing to offer a higher LTV ratio for more liquid assets. It is calculated as below:
Loan to Value Ratio = Loan Amount / Asset Value
Due to the differences in financing products, lenders, business qualifications and the region where the business is set up, the interest rates for asset-based lending can vary widely.
Terms: Similar to interest rates, there’s no real consistency amongst asset-based lending terms. In fact, the terms associated with this type of financing vary largely based on the type of collateral that’s used to secure the loan.
Sale and Lease-Back: 2020 presented many companies with unexpected challenges. In particular, companies that do not have top credit ratings are finding it increasingly difficult to gain access to capital. But in addition to the limited lending business of the banks, there are innovative financing solutions that are independent of creditworthiness and crisis and are still open to companies. You still have the option of using these solutions, which will give you an optimal start to the new year.
We can raise a considerable amount of funds in a short notice for companies finding it difficult to raise capital amidst this pandemic. One such innovative transaction is Sale and Lease Back which is a type of Asset Based Financing
Definition: Sale & Lease Back is a financing in which mobile assets (such as machines or vehicles) are sold to a lessor and immediately leased back. The lessee pays the monthly lease rates (usually 4 to 5 years) back to the lessor. The leasing object never physically leaves the company, which allows the operation to continue without restrictions.
What are the advantages of Sale & Lease Back?
-> Bank-independent financing form - collateral or guarantees are not necessary
-> Reducing reliance on banks and investors
-> Rapid liquidity grant through rapid resolution
-> Easier and quicker to obtain than unsecured loans and lines of credit
-> Fewer covenants
-> Option of clubbing other assets like inventories and receivables to increase the loan volume
When is a Sale & LeaseBack financing worthwhile?
-> In the event of liquidity bottlenecks - e.g. if there is a loss of sales due to the loss of major customers
-> In the case of company succession schemes or company acquisitions or M&A projects
-> Financing insolvency plans - in the case of restructuring and restructuring
-> To enable growth strategies - e.g. investment in digital transformation
Asset-Backed financing is no longer considered an option of last resort for corporate borrowers. It’s become a more acceptable consideration—even by investment-grade companies—because of its accommodative structures that require little or no covenants.
Agilis Advisors GmbH works with a large number of Sale and Leaseback partners across Europe, to give our clients a tailor-made offer that suits our client’s needs. For more enquiry, please contact hello@agilisadvisors.com
Sale & Lease Back NOT interesting for you?
Agilis Advisors GmbH also supports you in choosing the right financing solution as well as finding the right partner. We also take over the contract negotiations with the financing partners in order to provide you with the most favorable conditions.