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Everything and the kitchen sink

27 Mar 08

With a bit of attention to the small print, businesses can raise cash on a great many of their 'hard' assets as well as the invoice book if they move into asset finance

by Andrew Beach

Asset financing – the catch-all term for converting assets into working cash through means ranging from leases and hire purchase to invoice discounting and factoring – is going through something of a boom.

As credit becomes tighter and growth slows, lenders of all kinds are finding the security asset financing offers makes it very attractive.

Figures from Bibby Financial Services show invoice finance companies in the UK and Ireland advanced more than £15 billion to more than 47,000 companies last year, up 16 per cent on 2006. The industry has doubled in size since 2000 and is worth more than £190 billion, Bibby says.

For borrowers, asset financing can offer plenty of advantages, but independent advisers stress that care needs to be taken with the fine print, or it can prove to be an expensive way to raise money.

Donald Forsyth, business advisory partner at Scott-Moncrieff in Edinburgh, says that invoice discounting can be a very good approach for growing businesses, – if they have a suitable debtor book. “I’ve seen clients who have been talked into invoice discounting when they didn’t really need it, because their debtor book was of good quality. They then find that getting out of these arrangements can be quite a lengthy, expensive and difficult process.”

Brendan Waters, assistant director, corporate finance, at Johnston Carmichael in Glasgow says that while most forms of asset finance can be more expensive than the outright purchase of an asset, there are ways to offset that, such as tax savings.

“Entering into an asset-based lending agreement is certainly not a straightforward calculation, as there are upfront fees, there are interest payments, and you need to make sure it is structured correctly, particularly if it is part of a wider package with a number different forms of finance,” he says. “Getting the right balance between traditional debt and asset-based lending is important”.

He says that in many circumstances, invoice discounting is a good way for a company to free cash flow, but again there can be extra costs and arrangement fees.

“It is very much worth shopping around. All banks are looking to provide more in the way of asset-based lending, and there are, of course, companies that specialise in this type of lending,” he says.

Among the banks that are expanding their efforts in this area are Barclays. Colin Walls, newly appointed head of Scotland and Ireland sales finance for Barclays, says that while the market has matured over the past five or ten years, many companies still do not fully realise how big the potential is for this kind of finance.

“What we are looking to do is to open it up to a wider audience, not just conceptually but also in pushing the boundaries on things like financing export debt,” he says.

“If it’s about leveraging some more value out of the assets a business has and making them work a bit harder, then maybe lenders need to be a bit braver in how far they can take a transaction.”

Walls says sales finance really came into its own when the market was tight. “In tight times, people still need to do business. Banks are always happy to lend you an umbrella when the sun is shining, but we are looking to provide umbrellas when it is raining as well.”

Mark Storey, managing director invoice finance for Lloyds TSB Scotland, says people are becoming more aware of the potential asset financing offers. “We are working to make people aware that there is more to this kind of finance than maybe just the basic invoice discounting and factoring, and it can support businesses much more. There are ways we can look at using all of the ‘hard’ assets on a company’s balance sheet to support cash flow.”

Storey says the increased competition in the marketplace is a positive step, for both lenders and borrowers, as it raises the profile and understanding of different forms of asset finance.

The Royal Bank of Scotland’s asset finance business, Lombard, is reporting a busy start to the year. Ian Galbraith, head of retail and commercial (Scotland) at Lombard, says it has written more asset finance business in the first two months of 2008 than in the whole first quarter of 2007.

He says that because there are so many asset finance options available, it is important that FDs engage specialists to help them make the right decision for their circumstances and balance sheet.

He says the Finance Act 2006 had an impact on the tax status of leases, but leasing options remained financially attractive compared with traditional debt funding.

“Traditionally, the leasing company has benefited from the ability to claim the capital allowances on the cost of assets they have acquired for leasing purposes. Since the introduction of the act, parameters have changed to allow the customer eligibility to claim tax capital allowances on long-funding operating and finance leases.”

Galbraith says more and more companies are reviewing the options arising from the new regulations in consultation with leasing companies, and creating bespoke solutions taking account of individual cash flow, balance sheet and taxation factors.

David Matthewson, sales director at Bibby Financial Services Scotland, says the dramatic change in business confidence levels and economic growth is having a direct impact on the invoice finance industry.

“As tightening lending criteria make it much more difficult to get access to credit from banks, organisations such as Bibby Financial Services have an obvious opportunity to highlight the benefits of other flexible forms of funding such as invoice finance. However, long before the credit crunch and stock market dip in the US, invoice finance has been emerging as a credible form of funding in its own right,” he says.

Matthewson says the invoice finance industry is becoming increasingly sophisticated, and this year will see the introduction of new and innovative products. “Rather than offering a ‘one size fits all’ solution like banks, we have invested in market experts and tasked them with developing products and services that meet the particular nuances of the individual industries concerned, for example, the stage payment environment of the construction industry.

“Also, we expect to see increasing use of technology and the growth of online solutions which make it as easy as possible for businesses to access quotes, information and additional services.

“All in all, despite the current economic uncertainty, there is real potential for this year to be an exciting time for our industry and with careful financial planning and a comprehensive review of all the funding options available, there is every opportunity for the business community to come through the credit crunch unscathed.”

ANDREW BEACH is an editorial executive with Connect Communications.


In seven years, Brendan Cantwell and Gordon McKenzie have built their Action Scaffolding Contracts (ASC) business into a multi-million-pound operation, servicing some of Edinburgh’s largest building contractors.

Until recently, ASC hired a percentage of its scaffolding, but the company has obtained funding – £500,000 so far – from Royal Bank of Scotland’s (RBS) asset finance arm, Lombard, to increase its stock.

Cantwell says the company pays less than it did when hiring scaffolding, and will own the assets in three years. “That is a considerable benefit, given that steel scaffolding has a life of around 30 years,” he says.

Since its formation in 2001, ASC’s turnover leapt to well over £2m in the last financial year. In 2006 it created a new division, Action Building Contracts (ABC), and the two sides of the company employ more than 90 people.

Cantwell says that service was key to their success. “People need to be able to rely on scaffolding companies as they are the first people on a site and the last people off. If the scaffolding company is late or inefficient, that will set the whole project back.”

Anne Marie Nayna, relationship director with RBS Commercial Banking, says:

“I have a huge amount of admiration for Brendan and the team at Action. To have grown the scaffolding business at the rate they have in the past six years shows great dedication. Working with such a driven management team on a day-to-day basis is a real pleasure.”


With products like the Rock-It Scooter (part scooter, part skateboard), Flybar pogo stick and Stryderz “anti-gravity boots”, Dublin-based Atomic Sports has carved out an impressive chunk of the outdoor active toys market since it was founded in 2004.

The company works closely with inventors and manufacturers to identify new and exciting toys for marketing and distributing to retailers, and managing director Thomas O’Connell said when the opportunity came to win a large order from Toys ’R’ Us he needed extra funding.

“Selling products to big retail outfits was always the plan,” O’Connell said. “However, having relied on an overdraft from the bank to fund my business, I needed a more flexible and long-term financial solution to play with the big boys.”

Bibby Financial Services came up with a package that gave Atomic Sports the immediate cash injection it needed as well as a long term funding solution.

It allowed O’Connell to release money tied up in confirmed orders and to pay suppliers up front for the stock he needed. In addition, Bibby released 80 per cent of the value of outstanding invoices providing an immediate, continuing supply of finance.

O’Connell says: “Securing funding based on our confirmed orders was the perfect solution. Bibby were able to turn our request around quickly and as a result we were able to confirm the Toys ’R’ Us deal, which was a real coup.

“Another key benefit is that not only do they release the cash in our outstanding invoices, but they also chase outstanding payments from our domestic and overseas customers.”

O’Connell adds: “Turnover is doubling year-on-year and this could never have been achieved without the support and expertise provided by Bibby.”

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