Could asset-based lending fund a bid to acquire a struggling competitor?

My two co-directors and I own an engineering company. One of our competitors has got into trouble and is looking for a quick sale. We believe that the company – and its staff – has a lot to offer, but just needs a fresh injection of ideas. However, we would like to look into the alternatives of going to our bank for funding. Could asset lending help?

A. Mike Harrison of Enterprise Finance Europe writes:

Of course. Opportunities like this don’t arise that often. But it is important that before anything you fi rstly seek good professional advice and, secondly, fi nd the right funding lines to meet your requirements – not just the one that offers you the lowest rate of interest.

While debt finance has traditionally been the most popular method of meeting the cost of such acquisitions, , as a product it is often fixed, and therefore infl exible. Private equity, whether it be through a business angel network or venture capital fi rm, tends to be more amenable, but it does mean you handing over some control and equity from the business to a third party.

Increasingly, owner-managers such as yourselves are levering their assets and embarking on asset-based lending in order to meet the costs of acquisition as well as provide additional working capital for those unforeseen things that always tend to crop up when buying another business. Each package is tailor-made, and can be provided as a standalone solution or as part of an overall package (such as a complete refi nancing), with sums advanced ranging from £200,000 to £10m.

The best-known, and best-understood form of asset-based lending is invoice discounting. Currently used by thousands of small growing companies, it allows fi rms such as yours to release up to 90% of the value of unpaid invoices upon issue, with the balance released when the customer has settled the outstanding debt. Very little security is required, although any funds released will vary according to the strength of the asset in question.

In addition, taking into consideration stock, plant and machinery as well as land and buildings can extend this facility further. Please bear in mind though that this is just a guide and, as I said at the start of this article, take advice fi rst before you do anything. This will ensure you are getting the best fi nancial solution to help you meet your requirements.


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