BY FIRST HORIZON + FORTUNE BRAND STUDIO

With financial agility more important than ever, asset-based lending and equipment financing should be ready before they’re needed.

Amid rising economic uncertainty, supply chain disruption, inflation, and labor-related challenges, finding the capital to fund consistent growth and innovation requires companies to take a more sustainable approach to financing. After all, market turbulence drives businesses to mitigate risks and seek cost efficiencies, but it also creates surprising opportunities for advancement. To take advantage, however, firms need to be strategic about how they use their working capital.

Thriving in a tumultuous business environment requires a skilled eye for risk management, notes a Deloitte report(opens in a new tab), as well as some unconventional thinking and calculated risk-taking. Having the right financing options and cash positions in place before they’re needed can give businesses the agility they require to successfully invest in the future – as well as room to pivot wisely as needed.

“In uncertain economic environments, having access to cash and capital is paramount. Being able to quickly increase revolving lines of credit or establish a line of credit if a business doesn’t have one today is going to become more and more critical.”

- Kevin Beeson, Executive Vice President and Manager of Asset-Based Lending, First Horizon Bank

Asset-based lending goes mainstream

Recently, asset-based loans have surged in popularity, according to surveys by the Secured Finance Network. Once seen as an alternative financing option, the practice has been increasingly embraced by corporate leaders as the need for working capital and liquidity to offset economic uncertainty has continued to grow. “The cost of debt is expensive today, and it’s only going to get more expensive in the future,” says Beeson, advising firms not to assume that inflation has reached its peak.

Especially popular with middle market firms hoping to stay competitive despite rising operating costs and growing market pressure, asset-based solutions – secured by a firm’s inventory, accounts receivable, equipment, stocks and bonds, and real estate or other property – can provide on-demand capital for growth or restructuring. As Beeson explains, an asset-based lender helps firms solve increasingly variable financing needs by providing a quick, creative way to unlock liquidity.

“Speed of access is a strong feature,” says Beeson, “as are less demanding loan terms, wider utility for a host of business purposes, and lower interest rates than other financing.” Many lines of credit can be accessed immediately with a phone call and are often available the same day. Structural tweaks to a company’s line of asset-based credit are easy to make too. That’s a plus during times of market volatility, and it’s especially beneficial for companies that fluctuate seasonally in terms of liquidity or cash flow.

Although this type of financing is becoming more common, Beeson notes that it’s important to seek a lender who knows a company’s specific industry, inside and out. First Horizon’s bankers specialize in fields ranging from manufacturing to transportation to retail and more. As just one example, national and regional trucking companies (which see freight rates and fuel costs vary by region and have huge costs in terms of building a fleet) have often turned to asset-based lending solutions.

Financing growth and infrastructure upgrades

Cash may be king, but cash flow remains key in volatile economic environments. With trillions of dollars poised to be spent replacing outdated equipment globally, across fields such as transportation, construction, and utilities, leaders will face added pressure to protect their balance sheets in the coming years. As a result, business leaders will need increasingly flexible financing solutions that let them make upgrades without compromising their cash flows or operations.

“Companies need to be proactive about investing in or upgrading equipment and understanding that the availability of this equipment may be an issue,” says Beeson, touting financing options that use existing equipment as collateral. “Having access to the working capital needed to place these orders when you need them can help you reap added benefit. This can help you be more strategic in how you finance new purchases and avoid reducing your liquidity when you might need access to capital in the future.”

In 2022 alone, equipment and software investment growth could hit 5.9%, according to a report by the Equipment Leasing & Finance Foundation. For executive leaders, that means being smarter about where they place every dollar. Thankfully, custom-tailored equipment loans and tax-advantaged leasing products are designed to help clients minimize upfront investment. They also offer locked-in interest rates that allow for greater budgeting certainty; complete financing, often with no down payment required; and tax deductions via monthly lease payments. To get a better handle on capital-intensive expenditures, companies in every field are leveraging these financing solutions.

As a reminder, Beeson notes that added liquidity and greater cash flow can help your company stay more flexible and more competitive, whatever tomorrow holds. With agility more critical than ever, firms that actively invest in the future, maintain strong relationships with their bank, regularly plan for growth, and have financing ready before it’s needed have more opportunities to pivot or pounce on new opportunities in an unpredictable time. “A company is like any other living, breathing thing,” Beeson says. “Either you’re moving forward or you’re moving behind. There is no standing still.”

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*While First Horizon offers trust services we do not provide legal or tax advice. You should consult your legal or tax advisor concerning your situation.