£4bn+ boom in businesses borrowing against hard assets
– Record levels of borrowing now secured against inventory
Businesses borrowing against their own hard assets, including inventory, plant and machinery and real estate, is growing rapidly, says the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
The ABFA says that an all-time high of £4.2bn of alternative business finance is now secured against such assets, up 9% on £3.8bn a year ago.
The ABFA explains that securing alternative funding against physical assets, often combined with funding against the debts owed to them by their customers, is becoming a primary choice for finance for many businesses. It is increasingly being used as an alternative to more ‘traditional’ forms of borrowing such as term loans and overdrafts.
It adds that it has seen substantial growth in demand for this type of funding, known as ‘asset based lending’, from businesses across the economy, including larger businesses.
Jeff Longhurst, chief executive, ABFA, said: “The benefits of invoice finance are getting increasingly well known, but in addition to that, borrowing against hard assets is one of the innovative forms of alternative finance that has really gone mainstream in the last couple of years.
“More and more businesses are starting to see so-called alternative finance as their primary form of funding, rather than just as an unconventional complement to traditional lending.
“For businesses with substantial assets tied up in warehouses, for instance, or in plant and machinery, this can be an excellent way to access lending to drive investment.”
The ABFA says that it has also seen businesses begin to borrow against more unusual and intangible assets, including intellectual property and sometimes forward income streams, as they explore other options to unlock finance for growth.
Jeff continues: “Innovation is also spreading fast in this industry. For example, portfolios of intellectual property can now be used to secure funding. That’s because specialist funders with expertise in valuing these assets are now joining the market in greater numbers.”
The ABFA says that the overall amount of funding provided to businesses through asset based finance – including invoice finance as well as asset based lending – rose by £370m in the past year to stand at £19.3bn at the end of June.
It says that because this funding is secured against assets, the funds can be provided at a cheaper rate than with unsecured lending.