According to the Institute for Economic Research (IW Cologne),1 much of the government’s COVID-19 aid is arriving too late. Although 39.5 billion euros in Bridging Aid III, as well as November and December aid, are available for 2021, only about five billion of that amount has been disbursed so far. The survival of many businesses is at stake here—businesses that can no longer cope with the situation on their own.
Retail Sector Fears for Its Survival
The situation is particularly dire for brick-and-mortar retailers, among others. Retailers have been without a business foundation for months and are falling behind their online competitors. Asurvey2 by the German Retail Association illustrates just how serious the situation is. According to the survey, for 80 percent of downtown retailers, the current government aid measures are not enough to secure their survival. Without further assistance, 60 percent face closure.
However, compensation payments at best only offset balance-sheet losses. Urgently needed investments in infrastructure and processes—or the further development of the business model—are being put on hold. As a result, SMEs run the risk of being left behind by the transformation processes that are currently necessary. Here, an asset-based financing approach such as Asset-Based Credit can both help stabilize operations and provide financial resources for further development.
Leveraging the Value of Current Assets
Asset-based financing brings to light potential that has often become a burden during the lockdown, particularly for retailers and manufacturing companies. This is because valuable current and fixed assets incur costs related to storage, provision, and maintenance, even while goods cannot be sold and materials cannot be used in production.
Asset-Based Credit draws on these assets: machinery, vehicle fleets, warehouses, inventory, tangible assets, or real estate can be used as collateral for financing. These specialized asset-based loans help companies with bridge financing, loan refinancing, cushioning losses, or restructuring and turnaround efforts.
However, this short- to medium-term financing can also be used for investments in technology, processes, and business models. A key feature of asset-based credit is that it is credit-rating-independent. Here, the focus is on the assets themselves. This model also shares this characteristic with the sale-and-leaseback approach, which is particularly aimed at manufacturing SMEs with a large fleet of machinery and equipment.
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[1] Source: www.iwkoeln.de/presse/iw-nachrichten/beitrag/hubertus-bardt-weiterhin-zu-wenig-und-zu-spaet.html
[2] Source: einzelhandel.de/presse/aktuellemeldungen/13116-aktuelle-hde-trendumfrage-fuer-rund-80-prozent-der-betroffenen-einzelhaendler-reichen-die-derzeitigen-hilfsmassnahmen-nicht-aus
