21 Nov 2003
Asset Based Finance: An Alternative Financing Means for SMEs
What is Asset Based Finance (ABF)?
ABF is a financing method that is driven by the assets of companies. Assets include current assets, such as accounts receivables and inventory, and fixed assets, such as plant and machinery. ABF allows an SME to utilize its own assets to meet its short, medium and long term funding needs.
Short term financing (up to one year)
Offered in forms like factoring or accounts receivable/inventory revolving loans.
Medium term financing (one year to three years)
Based on a company's existing plant and equipment that is free from encumbrances. Can be in the form of hire purchase, leasing, sale and lease back, etc.
Long term financing (three to seven years)
A term loan based on the real estate of the company.
Benefits of ABF
Allows SMEs to maximize the benefits of their assets, to match the life of assets with that of liabilities, and to match the cash flow generated by relevant investments.
Cost of ABF
Based on the different forms of ABF, the cost may include service fees and interests. As ABF is not secured by collateral, the cost of ABF may be higher than normal banking facilities.
Special thanks to East Asia Heller Limited for supplying information for this display.