"In the evolving world of corporate finance, ABL stands as a strategic and innovative means of financing, particularly well-suited for SMEs."
It’s no secret that the corporate finance landscape has been through a whirlwind of change in the past few years. First a global pandemic caused widespread disruption to the global economy. This was then swiftly followed by mounting interest rates and stubborn inflation figures.
Our own industry is also facing a number of innovations that promise to change the way we work, from the increasing adoption of digitalisation to the role of Environmental, Social and Governance (ESG) plays in business operations and investment decisions.
Amidst this period of transformation, asset-based lending (ABL) has emerged as a key financial instrument for SMEs seeking to weather economic headwinds and fuel growth. In the evolving world of corporate finance, ABL stands as a strategic and innovative means of financing, particularly well-suited for SMEs. This empowers SMEs with access to working capital based on the inherent value of their assets, mitigating the barriers posed by stringent credit requirements.
Post-pandemic recovery
The prolonged impact of the pandemic has given rise to a ‘pandemic hangover’, with businesses still grappling with economic uncertainties. We’re now seeing many businesses facing the daunting task of reducing costs and simplifying their financial arrangements to ensure operational resilience.
Initially this led to a sharp decline in deal activity as businesses dealt with increased risk and focused on preserving cash. However, as the year has progressed, deal activity has rebounded, displaying the adaptability of businesses in the face of tougher economic conditions. For example, at Cynergy Business Finance we experienced a robust start to the year with a surge in committed funding lines, indicating the underlying confidence of businesses to forge ahead despite economic headwinds.
While we’ve seen deal activity gain momentum once again, we’re also seeing the process of concluding deals becoming more protracted. The pandemic introduced new complexities, such as remote working and travel restrictions, which slowed down the exchange of third-party documentation. In an effort to mitigate risk, lenders also intensified due diligence processes, resulting in more comprehensive and time-consuming assessments. This cautious approach has contributed to lengthier deal closures.
Opportunities for growth
Amid challenging economic conditions, signs of optimism are beginning to emerge, with lower inflation figures and supply chain issues easing. As sentiment in the market improves, businesses and lenders alike must seize opportunities and maintain a sense of optimism.
One such opportunity is the increase in digitalisation. From a business perspective, digitalisation is now a necessity, with the businesses that are willing to adopt new and innovative digital operations and practices becoming the most desirable to lenders.
The wealth of data made available through digitalisation also produces invaluable insight for lenders when assessing a business. In our own work, this uptake in digitalisation has become an essential aspect of our evaluation framework, allowing us to create tailored and flexible facilities that bests suit each individual business.
We’re also seeing an ever-increasing emphasis on ESG considerations. With mounting pressures on businesses to adopt more sustainable, socially aware practices, those that make meaningful changes are quickly becoming more desirable in the market. Over the last year in our own work we’ve seen this shift, with more and more businesses placing sustainability and community engagement at the heart of their operations.
Increased management buyouts
As businesses continue to get to grips with the “new normal” of economic uncertainty, the prolonged COVID-19 recovery is still impacting many long-term business plans. Notably, we’re seeing a marked upswing in M&A and management buyout (MBO) activity across the market. Across our own portfolio, we’re continuing to see this uptick in activity, with new management teams requiring external financing to support MBOs.
Shareholder fatigue and the need to explore fresh avenues for growth have led to an increased appetite for strategic partnerships and acquisitions. These transactions are not merely reactive measures, but strategic moves aimed at securing competitive advantages and expanding market presence.
The impact of asset-based lending
As the pandemic unfolded, many businesses faced liquidity challenges. Asset-based lending (ABL) emerged as a lifeline for SMEs during this tumultuous period. By leveraging tangible assets, SMEs could secure the necessary funding to bridge short-term gaps and invest in their growth strategies.
CBF has been at the forefront of alleviating these hardships by extending flexible ABL options that leverage tangible assets such as inventory, receivables, and equipment. This innovative approach allows SMEs to unlock the latent value of their assets, securing essential funding that bridges short-term gaps and empowers them to make strategic investments.
The market's changing landscape has amplified the demand for streamlining, flexibility and efficiency in securing financing. CBF's ability to offer a wide range of products and funds against multi-asset class lending has garnered heightened awareness among intermediaries. This versatility empowers businesses to properly structure their financing needs and find comprehensive solutions tailored to their unique requirements.
Fortune favors the bold and despite the complexities in the market, opportunities for growth remain abundant. Businesses that demonstrate resilience and adaptability will continue to attract investment and thrive in the post-pandemic world. Particularly given the versatile lending options ABL provides, we remain well-positioned to support seeking tailored financial solutions to capitalise on these opportunities.
