Helping Your Business to Survive the Economic Downturn

Discussion in 'Growing and Managing a Business' started by techsense, Oct 29, 2009.

  1. techsense

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    Jul 11, 2008
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    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.


    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.
  2. seanstevens

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    Jul 27, 2009
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    I'd be interested to know if you have any experience with the Asset based Lending structure yourself techsense?

    Personally I have heard good and bad things about it. I'd mention that I don't agree with one of the comments in the article stating that because the GDP fell 3% that companies will automatically feel the force of a decline in orders. This is a very subjective area depending on your business area & industry.

    ABL has a place and will always do well, but as a company you need to be careful who and how many companies you allow to take a charge over your assets as it could potentially be viewed as a negative by other companies you may want to ask for credit from in the future. Example: When you get a loan or mortgage from the bank they will sometimes register a charge against your fixed (property, cars etc) or floating (stock) assets this means of you go out of business they get their money from these. If you also used Asset based lending then they could also register a charge over some of your assets. Anyone doing a credit check on your company with the possibility of giving you further stock on credit will see this. They may be put off from granting you credit thinking that if anything happens to you, there will be nothing left in the business to get their money back from.
  3. dipcliper

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    Nov 17, 2009
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    I'd be interested on that!I'm checking on your link right now!thanks:)

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