Why more businesses are switching to asset-based lending: Dom Castle
It’s undeniable that the SME funding landscape has shifted in recent years. While access to finance remains as important as ever, businesses are now focusing more on whether their funding is flexible enough to help them respond to an increasingly unpredictable trading environment.
Economic uncertainty has become a permanent feature of doing business. Higher borrowing costs, inflationary pressures and overall weaker business confidence have all had an impact, while geopolitical events continue to create uncertainty around supply chains and investment decisions. Even when disruption doesn’t materialise, the prospect of it is often enough to make businesses more cautious about growth plans and capital expenditure.
This is all influencing how SMEs think about finance. More business owners are looking beyond traditional lending products towards funding that can adapt as their circumstances change. It’s one of the reasons why asset-based lending (ABL) is becoming a much more mainstream option.
For many years, ABL was viewed as a specialist product, often associated with businesses in turnaround situations or complex refinancing events. Today, that perception is changing. More established SMEs are recognising that lending secured against business assets can provide greater flexibility than conventional borrowing, allowing funding to grow alongside the business rather than being constrained by fixed facilities or short-term profitability.
That flexibility matters as SMEs build in volatility and uncertainty into their business operations. These businesses are now managing tighter margins while continuing to invest in people, technology and expansion. Funding linked to assets such as invoices, inventory or plant and machinery can provide access to working capital that reflects the underlying strength of the business, rather than relying solely on historic financial performance, which doesn’t always tell the full picture.
We’re also seeing SMEs engage with lenders much earlier in their growth journey. Rather than approaching funding as a last resort, management teams are taking a more strategic view of their capital structure, considering which type of finance will best support their ambitions over the long term. That represents a significant shift in mindset.
The role of lenders is evolving too. Increasingly, businesses are looking for partners who understand their sector, can structure facilities around their specific requirements and have the confidence to support opportunities that may not fit a standard lending model.
Working with businesses across the UK, it’s clear that resilience and adaptability have become defining characteristics of successful SMEs. Those qualities need to be reflected in the way businesses finance themselves. This means that alternative options like asset-based lending are quickly moving into the mainstream.
The fact remains that the economic backdrop is unlikely to become significantly more predictable in the near future. Despite this, there are still plenty of opportunities to grow and scale, but having the right funding in place to provide flexibility is essential. For SMEs, asset-based lending can provide a real strategic advantage, unlocking capital in the business while giving teams room to pivot and adapt as conditions change.
Dom Castle is regional managing director, north, at Secure Trust Bank Business Finance