Asset Based Lending – food for thought

Graham Barber of PNC explains how ABL can meet the food industries’ borrowing requirements.

Food manufacturers have a lot on their plates these days. Margins are sliced wafer-thin, competition is becoming increasingly intense and, in many cases, working capital has been depleted significantly. To continue to compete effectively and stand out in their product categories, food companies are under pressure to explore new options for growth.

However, traditional finance facilities, based on weakened post-crunch balance sheet performance, will inevitably prove inadequate for UK food companies with ambitions for expansion.

In a market characterised by asset-rich, process-intensive organisations, operating with tight margins, it is entirely logical that the use of Asset Based Lending by the UK food industry has come into its own.

Asset Based Lenders look beyond financial statements and historical performance to determine advances and frequently provide funds where traditional sources are not available.

Unlocking assets to maximise working capital

As the name of the facility suggests, the clear objective of Asset Based Lending is to maximise the level of finance available to a business against the value of its assets. For example, significant levels of finance can be provided against the accounts receivable, inventory, plant and machinery, as well as freehold property. Some Asset Based Lenders, like PNC Business Credit, also deliver cash flow loans that sit alongside the asset-based structure and help deliver further liquidity to aid investment and growth plans.

Whether food companies are looking to grow organically, make strategic acquisitions, effect a management buy out, or implement a restructuring plan, Asset Based Lending offers a higher level of working capital to make business ambitions a reality.

The amount of finance available is subject to the value of the assets, as well as the percentage advanced attributable to the specific type of asset. Since the facility is fully secured against the assets of a business, a lender can be more consistent throughout the banking relationship, even during difficult economic or trading times.

The revolving nature of the credit facility accelerates cash flow by allowing a business to borrow against the value of stock or receivables that are expected to become cash in the near future. The subsequent increase in cash flow improves liquidity and allows the company to extend and optimise its equity base.

A case in point

A very good example of a leading food company using Asset Based Lending to its full advantage can be found in The Real Good Food Company plc (RGFC).
RGFC is a diversified food group which owns Napier Brown (Europe’s biggest non-refining sugar distributor), as well as Renshaw and R&W Scott (bakery ingredients), Garrett Ingredients (dairy ingredients) and Haydens Bakery (patisserie and desserts).

PNC Business Credit has been supporting RGFC since 2008. A new five-year £50 million facility, which represented a £10 million increase on the existing arrangement, comprised of a mixture of revolving credit facilities secured on trade debtors and inventory and term loans secured on the fixed assets of the business.

The facility is enabling each business in the Group to realise ambitious growth plans which require new investment in operations. Strategic initiatives include new sugar handling facilities at Napier Brown that allow increasing supplies of sugar to be sourced worldwide. Furthermore, the recent investment in Haydens’ new distribution centre has created the necessary space in the factory to enable a modernisation programme to start, which will both increase capacity and reduce costs.

Mike McDonough, Group Finance Director, RGFC, commented;

“We are extremely pleased to be renewing our relationship with PNC Business Credit. They have shown us time and again that they are a true partner, providing every support to help fuel our growth.“

Structuring smarter deals

Today, Asset Based Lending is working for UK companies with combined turnovers of almost £200 billion per annum. Businesses have come to count on PNC Business Credit as a consistent and reliable source of working capital through good and bad economies, in a variety of scenarios.

PNC Business Credit has a track record of providing Asset Based Lending facilities to UK businesses, whose funding requirements range from £5 million to £50 million. Over the last two years, PNC Business Credit has completed transactions with a combined lending commitment in excess of £0.55 billion.

Graham Barber
Business Development & Marketing Director

PNC Business Credit
Tel: ++ 44(0) 1223 370033

Fax: ++ 44 (0) 1223 370105

MOB: ++ 44(0) 7824 347693

Email: [email protected]

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