Choosing Between Cash flow Loans and Asset-Based Lending
What is a Cash Flow Loan?
Cash Flow Loans are an injection of capital into the business upfront which is repaid including any interest over an agreed term ranging from 3 to 72 months. The amount you can apply for, and the interest rates, depends on several factors including sector, reason for funding, the historic or projected business performance, and debt serviceability. Cash Flow Loans are typically secured by a personal guarantee and can include a debenture over the borrowing entity and/or other group companies.
Best for: An injection of adrenaline to support growth, acquisitions, management buy-outs, management buy-ins, Capex, or working capital stretch.
Pricing: Due to the unsecured nature of Cash Flow loans, interest rates are typically higher than ABL facilities as the risk profile is greater – ABL funders have security over the asset(s) which is their principal exit route.
Timescales: Cash Flow loans can be turned around quicker due to the “unsecured” nature and requiring less information. Cash Flow loans can be in place within 1-4 weeks (depending on the size of the loan).
Read more about Cash Flow Loans Here.
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What is Asset-Based Lending (ABL)?
ABL on the other hand, is secured against a company’s tangible assets, such as the receivables, plant and machinery, property, or stock. ABL is suited for businesses with assets that can be used as collateral. Due to the security taken, funders can even support turn-around cases where financial performance may have softened but there is a plan in place to turn it around.
ABL is also a popular solution for growing businesses as well as supporting acquisitions, management buy-outs and management by-ins.
Best for: Sectors with tangible assets such as manufacturing, logistics and wholesale where the lender can securitise against debtors, plant & machinery, and/or property.
Pricing: ABL usually has lower interest rates because the lender’s facility is secured against a tangible asset and in the event of a business failure, they can use this asset to recover their outstanding funds.
Timescales: A typical ABL facility can be in place can between 6-8 weeks, subject to debtor book due diligence, and/or plant & machinery, or property valuations.
Read more about Asset Based Lending Here.
So, what’s the Answer?
As you can probably tell, there is no straight forward answer as to whether a Cash Flow Loan or ABL facility is better. It really does depend on each individual situation, including but not limited to:
- What the funding is for
- The financial performance of the business
- What assets are available
- Outstanding position with HMRC(a further post on this coming!)
- What other borrowing is in the business
The best way to see which funding solution suits you better is to use third-party experts like the team at Navigate Commercial Finance. With a combined 60+ years working in business and finance, Navigate understands the market and has forged excellent relationships with key decision-makers at a wide range of pragmatic lenders giving us the best chance to secure your finance.
Our approach is centred around understanding your business and tailoring financial solutions that align with your specific goals. Whether you’re looking to expand, manage cash flow, or explore new opportunities, we’re here to help you make informed, confident decisions every step of the way.
Why Choose Navigate Commercial Finance?
At Navigate Commercial Finance, our approach is centred around understanding your business and tailoring financial solutions that align with your specific goals. With our extensive network of lenders, wealth of experience and commitment to ongoing support, we ensure that your business has the financial tools it needs to meet your strategic plan. Whether you’re looking to expand, manage cash flow, or explore new opportunities, we’re here to help you make informed, confident decisions every step of the way.
Take Action Today
Contact us today to see how our expert team can help you leverage your balance sheet for growth and navigate the complexities of commercial finance with confidence.