Listed in: Finance & tax

Financing a business without tangible assets

Tim Wixon, Head of Tech Industry at BNZ, works alongside a range of high growth clients. In this article, Tim will share a few tips on how to finance a business without tangible assets.

3 minute read

Rapid technological change is disrupting many aspects of our lives, including the conventional ways we do business and how business models can be created.

While traditional business models often require significant  investment in tangible assets such as plant or equipment, the current technological revolution changes the traditional, allowing entrepreneurs to create globally scalable business models where the core value is intangible assets, such as knowledge, software, intellectual property or contracts.

This can create a challenge when it comes to financing, particularly from lenders. How do you access the funding you need to grow, when your business has limited tangible assets to offer lenders as security, and without diluting your equity in your business?

Leveraging your cash flow

One option is cash flow lending, whereby a business is able to leverage its operating cash flow, as opposed to the tangible assets on its balance sheet. Intangible assets, a strong value proposition , and of course people, are key.

Cash flow lending may be working capital funding, or term debt funding. Working capital funding is shorter term and can be used to finance everyday operations of a business. Whereas term debt funding is longer term and generally used to finance larger one-off acquisitions or investments. Both types of funding can help businesses grow faster if well-structured and appropriately utilised.

A good example of a scalable working capital solution for a growing business  that is exporting their services, goods or solutions overseas, would be an export trade finance (receivables) facility. For example, if you are exporting or providing services to the USA, Australia, China or elsewhere and you need to pay your staff and local costs before you receive your sales proceeds from those clients, an export trade (receivables) finance facility may work really well for you. In other cases, a simple overdraft may better suit your business.

Businesses that might benefit from cash flow lending

While cash flow lending is an option for a range of businesses – including those with traditional tangible assets – not all businesses will have strong enough cash flow to support it.

One of the keys to seeking this kind of funding is the ability to demonstrate a deep understanding of your business’ forward-looking cash flows and working capital cycle. Banks would generally want to see at least the following to help with your funding wants and needs.

• At least two years of historical financial statements (preferably three).
• Financial forecasts for the next 12 months.
• An understanding of any peaks and troughs in your cash flow cycle.
• A written business plan, strategy or similar.
• A list of debtors and creditors.
• An understanding of your key value propositions and any intangible assets the business owns, and how they are protected.
• Any key contracts the business has entered into.
• A company structure chart and an overview of the key people in the operation.

Where appropriate, leveraging cash flow can really help businesses with their growth and may prove very cost-effective relative to parting with an equity stake in your business to fund some or all of your financing wants and needs.

Related articles

Finance options for businesses

Loans and finance