Finance fables for tough times


News - 04 May 2020

In this article, Head of Relationship Management, Chris Pacey, looks at the value of Asset Based Lending during these tumultuous times and how this flexible form of funding can support reintegration for businesses that weather the storm.

In Aesop’s fable of the oak and the reed, a mighty storm fells the sturdy tree, but the reeds bend in the wind and survive. It is a tale worth heeding for businesses wondering how to survive – and even thrive – through this stormy period for the global economy.

The Coronavirus pandemic has wreaked human and economic devastation around the world. Even as social distancing measures begin to “flatten the curve”, news of second wave outbreaks in countries emerging from lockdown, mean the prospect of any return to business as usual, here in the UK, remains as uncertain as ever.

The implications for businesses everywhere are monumental. Just two days after the government implemented unprecedented restrictions on our way of life on March 23, the British Chamber of Commerce’s debut Coronavirus Business Impact Tracker, revealed that two thirds of companies had just three months of reserves in place – or less.

Whether organisations had developed pandemic response plans or not, the task of implementing those has been daunting. Inevitably, perhaps, most management teams initially went into reaction mode, focusing their attention on payments and expenditure in order to preserve precious cash.

Sadly, of course, many businesses have had to close their doors until we emerge out the other side of this crisis. But, as we move into a second month of home schooling, remote working and prolific teleconferencing, many other businesses are establishing a new norm.

We are seeing clients finding ways to bring back some level of manufacturing. Others are even experiencing an increase in demand, as a result of new NHS contracts, for example, or a focus on domestic consumer goods that are in short supply.

And even where cash remains a pressing concern, the need to ensure businesses are prepared for any eventuality – including recovery – is becoming increasingly clear. Asset Based Lending (ABL) is ideally suited to supporting viable businesses through challenging times and ensuring companies are primed and ready to benefit from a surge in demand when reintegration finally occurs.

Willing and ABL

While ABL can provide rapid access to cash supporting companies that are managing to stay open for business and weather the current storm (where receivables, debtors or inventory are available as security), the real advantage of ABL is its ability to flex up and down with demand.

If a new contract is unexpectedly awarded, for example, or a major client comes out of hibernation, when many of your staff have been furloughed, or you have run down your raw materials, ABL can provide the working capital you need to make sure you are in a position to take advantage of that opportunity.

Meanwhile, too often, companies survive a recession only to fail because they are unable to take advantage of the upturn when it eventually comes. They simply have no cash reserves to deploy when there is a rise in demand. Traditional forms of lending often lag an uptick, but with ABL, as sales increase and your debtor book and inventory swell, facilities will expand accordingly, ensuring you have the firepower to ride the wave of recovery.

There is no doubt that the world that we emerge into when the lockdown is finally eased, will be very different to the world we knew before. Supply chains will need to be reimagined. Working practices may well have changed for good. The very essence of globalisation may be called into question.

The only certainty right now is that nothing is certain, which makes this the ideal time to forge a partnership with a lender that is able to support you through these challenging months and through the recovery to follow. Just like Aesop’s reeds that bent in the wind, businesses afforded the flexibility of an ABL facility during these tumultuous times may not be entirely insulated from the storm that is currently ravaging our economy, but will be in the best possible position to survive and ultimately thrive.