Asset rich, but cash poor – businesses in this position should look to bridging finance as an immediate solution to their cash flow requirements
Following the positive outcome of the Soccer World Cup and the increased consumer confidence in the economy, companies may now find themselves requiring funds to facilitate growth or to take advantage of new opportunities. Unfortunately for some, they may be in an ‘asset rich, cash poor’ position.
Jeffrey Froom, executive at Prevance Bridging Finance - a member of the Chester Finance Group, says owning assets such as properties allows businesses to access what is considered to be ‘locked cash’.
”Businesses that own property may sometimes require short term cash injections for operations. Selling the property assets to raise cash required does not serve owners well over the longer term. The funds required are usually needed for immediate and short term purposes, and projects in which they are used would generate cash returns over relatively short periods. Ideally the money required should not be raised through selling long term fixed assets.
“Also, the funds will often be required at short notice, something that is not possible considering the sale of property can take time. Although property is often viewed as one of the safest, and most rewarding, investments, its downside is a lack of short term liquidity. And once the property is sold, the seller may regretfully watch as the new owner benefits from further capital appreciation. After evaluating these shortcomings, property owners may abandon their ideas, missing out on opportunities for further growth or expansion - or sell properties in a rush, losing much of the investment value they represent.”
Froom says bridging finance can play a key role for businesses that own property and want short term operating funds, but are reluctant to raise such money through the sale of long term assets.
He says bridging finance is different to traditional borrowing, and requires specific design related to the exact circumstances of the borrower.
“Traditional borrowing would usually entail strictly regulated lending conditions that may be limiting. A niche lender, such as a professional finance group, would sit down and discuss the needs of the business, allowing for a tailor made structuring of the repayment terms. This gives businesses the opportunity to maximise the use of the loan. Although bridging finance is more expensive than longer term traditional lending products, it carries numerous benefits to businesses that conventional lending cannot offer.”
