The new reality

In the current economic climate, many companies refinance themselves as part of adjusting their business plans. As Steve Websdale, the head of Venture Structured Finance explains, Asset Based Lending can play a part in the refinance process.

If a company’s managers are under the age of 45, chances are they won’t have any experience of dealing with a downturn, says Steve Websdale. As Managing Director of Venture’s Structured Finance division, Steve has seen many management teams not only coping with the unfamiliar effects of a recession, but also facing an acute shortage of available finance from traditional lenders. In the past, healthy companies could look to their banks to provide them with the liquidity needed in order to deal with the temporary effects of a downturn. Today, many companies find that their existing lenders are unable to provide that support.

This situation has placed many UK businesses in a tight spot. Few companies can defy financial gravity. As Steve points out, monthly and quarterly figures showing falling GDP are not abstract numbers. They represent a sharp fall in demand, which has permeated throughout a broad section of the British economy. Some companies have managed to buck the trend by growing revenues and profits over the last year or so, but an expected decline of 3.0% or more in this year’s output figures inevitably means that many companies will feel the pain of falling order books. And this is something businesses have had to address, says Steve. Organisations have to adjust their business plans in line with the current economic climate.

Refinancing

There are various ways of adjusting to an unpredictable economy. Many companies cut costs in response to current or expected falls in revenues, but often this is part of a much wider review of business plans. We’ve seen some companies divesting non-core subsidiaries and others making acquisitions to ramp up their market share, observes Steve. This kind of re-engineering should not necessarily be seen as a negative thing. Yes, it is a response to challenging circumstances, but it can also help position businesses to take full advantage when the inevitable upturn arrives.

However, even those management teams that have devised realistic plans to steer their companies through the downturn and position it for the expected recovery, may well find that an existing lender is unwilling or unable to help. With the banking sector in turmoil, an increasing number of businesses are seeking finance not from high street banks but from Asset Based Lending specialists such as Venture. There is a loss of confidence in traditional lenders, says Steve. This is partly due to difficulty in securing additional finance, but companies are also concerned about the response of clearing banks to covenant breaches.

Asset Based Lenders have been more willing to provide money to refinance, with lending secured against assets ranging from receivables to plant and machinery. As Steve stresses, access to Asset Based Lending solutions involves management teams demonstrating that they have developed a business plan to overcome any short term difficulties. We look for businesses that are both viable and sustainable, he says.

A dual track solution

Working with an Asset Based Lender does not necessarily mean that incumbent banks will have no role to play in providing finance. It is certainly possible for businesses to use both a bank and Venture’s Asset Based Lending facilities. We are seeing this happening more often, says Steve. The existing bank retains part of the facility. For instance, the bank may retain a term loan and its overdraft facility. We will then put an Asset Based facility in place, resulting in far higher levels of working capital.

A specialist service

The input of a specialist Asset Based Lender is about more than money. Specialists such as Venture have Portfolio

Managers who provide a bespoke service. We make certain we have the time to work closely with our clients. Venture is able to respond quickly to changing client needs, which is vital in challenging market conditions, says Steve. Businesses want practical assistance, not a sausage machine churning out the standard answers. Crucially, given the current state of the economy, some of that advice will come from people who know what it is to manage a business through difficult times. We have people who were working during the last recession, and can therefore pass on their experience.

Acting quickly

Identifying problems early on and acting sooner rather than later is always sound practice. Taking action when the management team is still in control is always preferable to remedial work undertaken when a problem gets out of hand. It also demonstrates the ability of management to respond to changes.

However, such has been the speed of the current recession that even some of the best-managed companies have had to cope with real financial stress. Here, Asset Based Finance can provide support for full-scale restructuring and Venture is certainly open for business on this front. We work with accountancy firms and turnaround specialists on restructuring projects and we are always ready to listen and respond, says Steve. But management teams must be prepared to take the often tough measures required to turn around an ailing company and restore it to health. As Steve puts it, They must show they have both skill and nerve.

Steve Websdale is writing on behalf of Venture Finance, providers of Invoice Finance, Factoring and Invoice Discounting Services

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