Saracens Blog

Asset Financing and Financial Law Services

Asset Financing is that instrument of borrowing in which the borrower pledges one/portion of its balance sheet assets like inventory, short term investments, accounts receivables, etc. to obtain a loan from the lender.

This practical is different from regular debt or raising securities in a sense that the company or the business simply pledges its assets in exchange of a quick cash loan.

Financial law services have always had a role in asset financing, from providing regular soliciting services to monitoring and regulations.

The most common area regulated, by most of the financial law services agency is the ‘qualification of secured assets as asset financing instruments’ and ‘point of maturity’. A new dimension is added to such regulations when multi-nationals start to asset finance at a global level.

In this respect, progress towards convergence and merger of the global accounting standards towards International Accounting Standards (IAS) are a positive step because it will give the financial law services a platform from regulating the global asset financing marketplace.

Another growing practice is using inventory assets as asset financing instrument. This, when done on a global level, creates new challenges for the financial law services regulating this practice. The differences in treatment of inventory in the different accounting jurisdictions might pose some serious challenges. For instance, an inventory- valued at LIFO – by a US borrower from an IFRS following firm in UK can be a difficult issue for the dealing financial law services agency/organisation. Another example can be in case of an IFRS borrower and a US GAAP lender in which the borrower measures the inventory’s net realisable value equivalent to fair value, a measure not recognised by US GAAP.

The main issue is that the transitional law practice of the asset law financing has grown dramatically but the scholarship has not kept pace. There is an urgent need in UK to have a body of knowledge constituted, accessible to the financial law services agencies.

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