Asset-based finance to businesses jumps 13% in a year to £22.2bn
Asset-based finance to businesses is up 13% since last year, hitting an all-time high of £22.2bn, rising from £20.6bn the previous year, says the Asset Based Finance Association, the body representing the asset-based finance industry in the UK and the Republic of Ireland.
The ABFA says that a key driver of this rise is that the UK’s biggest businesses are increasingly turning to asset-based finance, supplementing the finance they receive from traditional sources such as overdrafts and loans, to finance new projects, growth opportunities, and M&A activity.
Large businesses* have increased their usage of this type of finance by 21% in the last year, from £6.7bn to £8.1bn.
The ABFA explains that a major driver behind the increasing use of asset-based finance by larger businesses is its key role in funding their M&A activity. Asset-based finance is now being regularly used to fund significant M&A transactions by allowing businesses to borrow against the value of the target firm’s invoices.
Asset-based finance has grown by 7% in the last quarter of 2016, up from £20.6bn which can be attributed to financial instability following the Brexit vote, that has meant businesses are turning to this type of finance in order to create a ‘cash cushion’.
The ABFA says that 80% of asset-based finance is made up of invoice finance, in which businesses secure funding against their unpaid invoices. This accounted for £17.9bn of overall funding provided to businesses last year.
The other 20% represents the fast-growing area of asset-based lending, in which in addition to debts, businesses can raise funding secured against a range of other assets they own, including inventory, property, and machinery.
Jeff Longhurst, chief executive of the ABFA, said:
“Larger businesses are increasingly using asset based finance in innovative ways to fund their growth and M&A activity.
“Asset-based finance is already well used amongst SMEs, but now larger businesses are well aware of the opportunities it provides them. Bring able to release the value in a target company’s invoices can often be the critical factor in an acquisition.
“All sizes of UK businesses need to be aware of the possibilities and opportunities that asset-based finance can provide them beyond what traditional sources can often offer them.”
*Those with annual turnovers of over £100m.