If you work with enough high net worth clients, you will know that there are some situations when traditional funding sources aren’t able to deliver the right solution.
In these circumstances an asset-based lender could provide the flexibility you require to crack the case, so when should you use one and what do you need to know?
Asset-based lending is sometimes seen as a niche sector of finance where a loan is secured on an unconventional asset, such as a wine collection or vintage cars.
These are valid assets, and they can provide important collateral to support a deal, but they should not define the whole category. The key differentiator of an asset-based lender is not so much the assets, but the working relationship that can be established with a broker to provide a highly personalised and flexible solution for complex client requirements.
Asset-based lenders are typically smaller organisations, which means it is usually commonplace for a broker to work with senior managers or even owners of the business when discussing a case.
Whereas a more traditional lender would need to adhere to lending policy or refer to a credit committee, an asset-based lender should have the autonomy to recognise a good transaction and make bespoke lending decisions, which means it can provide real flexibility.
Here are some examples where an asset-based lender could look at the whole deal in the round and help where other lenders may struggle.
Where a client is highly leveraged on their main property and struggling to secure the borrowing they need, an asset-based lender is able to look at other collateral that could be used as security to achieve the level of comfort it needs to proceed with the case. These assets might include international property, yachts, cars, planes or art, but they could also be, and commonly are, UK property.
This approach means that borrowers can achieve high LTVs by spreading the charge across multiple assets.
Asset-based lending can also be a very quick way of raising funds, even by bridging lender standards. It is possible, for example to submit an application on Monday and for the client to receive the funds on Wednesday.
This speed is also down to flexibility. An application might require a number of supporting documents, but all an asset-lender really needs to proceed is a signed loan agreement and a deed of charge and, on a good case, the lender can expedite proceedings by agreeing to advance some or all of the funds ahead of receiving the additional documentation.
Another area where flexibility can be beneficial is fees, and a good asset-based lender should be able to work with a broker to identify the most appropriate fee level to add to the loan agreement. There is no set product matrix – the focus is on building the best loan structure to get the deal done.
Things to remember
An asset-based lender is not appropriate for personal use such as paying off personal debt or refurbishing the borrower’s home but should be seen as a tool to provide funding for business or investment. It is never going to be as cheap as a bank, but smart clients recognise the opportunity cost of borrowing and will often have plans to use the funds to achieve greater returns.
And, despite the name, lending decisions are based not just on the asset, but on the asset and liabilities of the borrower. Essentially, the net worth and nature of the applicant’s finances are a big consideration for a lender.
For the right clients, an asset-based lender will always investigate every option, across different collateral, to find a solution, and can provide an invaluable tool for brokers who work with high net worth clients.
Ben Shaw is CEO of HNW Lending