Asset-Based Financing & the Rise of Sale and Lease-back transactions in Germany

Asset-based finance Germany is a specialized method of providing companies with working capital and term loans that use accounts receivable, inventory, machinery, equipment, or real estate as collateral. It is essentially any loan to a company that is secured by one of the company's assets.

In asset-based financing, the loan is secured by the assets of the borrower. Examples of assets that can be used to secure a loan include accounts receivable, inventory, marketable securities, and property, plant, and equipment (PP&E). Companies in return can get working capital, term loans, a revolving line of credit or to meet specific short-term cash needs.

Loan Amount: Asset-based lending commonly uses the Loan-to-Value ratio (LTV) metrics to determine loan amount. The loan-to-value ratio depends on the type of asset – lenders are generally willing to offer a higher LTV ratio for more liquid assets. It is calculated as below: Loan to Value Ratio = Loan Amount / Asset Value Due to the differences in financing products, lenders, business qualifications and the region where the business is set up, the interest rates for asset-based lending can vary widely.

Terms: Similar to interest rates, there’s no real consistency amongst asset-based lending terms. In fact, the terms associated with this type of financing vary largely based on the type of collateral that’s used to secure the loan.

Sale and Lease-Back: 2020 presented many companies with unexpected challenges. In particular, companies that do not have top credit ratings are finding it increasingly difficult to gain access to capital.

But in addition to the limited lending business of the banks, there are innovative financing solutions that are independent of creditworthiness and crisis and are still open to companies. You still have the option of using these solutions, which will give you an optimal start to the new year.

We can raise a considerable amount of funds in a short notice for companies finding it difficult to raise capital amidst this pandemic. One such innovative transaction is Sale and Lease Back which is a type of Asset Based Financing Definition: Sale & Lease Back is a financing in which mobile assets (such as machines or vehicles) are sold to a lessor and immediately leased back. The lessee pays the monthly lease rates (usually 4 to 5 years) back to the lessor. The leasing object never physically leaves the company, which allows the operation to continue without restrictions.

What are the advantages of Sale & Lease Back?

-> Bank-independent financing form - collateral or guarantees are not necessary -> Reducing reliance on banks and investors -> Rapid liquidity grant through rapid resolution -> Easier and quicker to obtain than unsecured loans and lines of credit