In partnership with ABN AMRO Commercial Finance, Real Business has produced a comprehensive guide on asset-based lending. To give you a flavour of what is on offer in the guide, here is one of our fascinating case studies. Make sure you follow the link at the bottom to access to full guide free of charge.
Banks have been bashed, from pillar to post, since the collapse of Lehmans in 2008 and subsequent scandals that emerged in the form of remuneration, insider trading, currency rigging and government aid.
Business services company The Chemistry Group had been bootstrapped since inception, using the familiar combination of credit cards and re-mortgaged properties. Now a little over ten years-old, founder Roger Philby decided that the speed at which he wanted to grow his firm meant needing to take on some outside support.
“Most entrepreneurs will tell you that banks are the devil incarnate. In ten years of my business, I’ve probably met my bank half a dozen times – they don’t understand what business I am in,” Philby explained.
“I wanted to grow harder and faster, and bank funding is not available for SMEs. Equity funding gives away a stake – not what I wanted to do.”
The company’s predicament will have a familiar feel to it for many entrepreneurs. With most of his customers being FTSE 100 or Fortune 500 firms, and despite the constant protestations from the public that these kind of companies should be paying smaller businesses earlier, Philby was still facing payment terms of between 60 and 120 days.
“The new funding allows us to make investments where previously we would have had to wait longer – we can seize opportunities in front of us,” he added.
One of the biggest queries companies often have when it comes to asset-based lending is what kind of preparation needs to be done to comply. While Philby did have to do some tidying up when it came to signed statements of work and payment orders, he admitted that the company was a bit lax about that and is now in a better situation.
“Our lender gave us templates to work with, which we modified a bit – but were good at helping us to access funding by tidying up shop. Banks I couldn’t speak badly enough about as, for a organisation which should have all the information needed as they deal with SMEs and entrepreneurs daily, they have no advice.”
The Chemistry Group’s set up means it can get 70 per cent of the invoice ahead of time, and then 30 per cent once it is paid. Interest is paid on the ledger alongside a service charge. The business does have to stick to some payment terms, so can’t have clients consistently going over 60 days.
Philby can also chose whether or not to draw down money depending on the situation. “Bottom line is it’s a very flexible way of securing finance for us,” he added.
In a 6-8 week period last year, The Chemistry Group sold £1m of work and were thus able to up its limits to accommodate for the need to hire new staff. Now it’s ledger is back to a normal run rate, demonstrating the funding line’s flexibility, Philby said.
He does not have a full time finance team handling the agreement, only a member of staff working for a couple of days a week and a part-time bookkeeper.
The firm has found a form of finance away from the banks, just where it wants to be.
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