Whilst “Asset Based Lending” is not entirely new to Australia, this style of lending has been conspicuously absent from main stream funder offerings since the departure of certain overseas players from the Australian market.
However, Hermes Capital does provide Asset Based Loans – primarily to businesses in transition.
“Asset Based Lending” is commercial financing to a business with up to two components: Invoice Financing or Factoring that provides a revolving cash flow facility, and an Asset Based Term Loan facility that potentially doubles the availability of funds through plant and equipment financing or Property Mortgage lending (usually via a first or second mortgage).
This approach gives Hermes unique finance structuring capabilities that can be tailored for businesses transitioning through growth, acquisition/buy out, ATO obligations, turnaround, restructure or insolvency.
This month’s case study demonstrates how Hermes is filling the growing financing gap being left by the banks and other institutions as they increasingly constrain their exposure to the SME commercial finance market.
A telecommunications infrastructure company turning over $20 million p.a. was in the process of informally restructuring and re-focusing of its business by selling off the smaller of its two divisions. The need to do this came about as a result of pending action by the ATO for debt that had accrued when management had lost their way dividing their attention on essentially two different businesses.
As a result of the ATO debt, the existing two lenders (a bank and invoice funder) agreed not to cancel the existing lines however, nor would they work with the business to extend the facilities to facilitate the profitable growth occurring to allow for a bridge for an agreed sale of a division that would resolve the ATO issue.
Asset Based Lending Solution
Customer sought an overall funding requirement of $6 million including $1.5 million for working capital and $4.5 million to payout the existing recalcitrant financiers.
Assets available to support new funding included accounts receivable and sufficient property equity.
Having determined the ongoing viability of the business and a sufficient level of assets available for security, Hermes provided an Asset Based solution via its Capital Maximiser Facility that included a $3 million debtor finance facility and a $3 million term loan.
The gap in the market for commerical finance
No other lender in the market place (neither bank nor debtor financier) had the commercial capability or risk appetite, given the circumstances, to provide the customised solution through a debtor finance and term loan combination sufficient to satisfy the customer’s requirements.
Hermes was able to assess forecasts and mitigate risk by valuing the various classes of security and thereby structure a satisfactory solution to assure the current viability and future success of the business.
Post funding with Hermes one division has been sold and the remaining division continues to successfully grow as projected.
The business has now re-focused with restored profitability and the future wealth of its proprietors assured.