Number of larger businesses securing asset-based finance up 25% in 2015
The number of larger businesses using invoice finance jumped by 25% in just a year, from 713 in 2014 to 893 last year, as they increasingly use it to complement ‘traditional’ sources of finance*, says the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
As it is secured against invoices and other assets, it can be a less risky form of finance for funders to provide. This means big businesses can get even quicker decisions on asset based finance than traditional finance.
The ABFA explains that around 80% of asset-based finance is invoice finance, in which businesses secure funding against their unpaid invoices, while 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, added:
“Asset-based finance is now one of the primary sources of funding for businesses of all sizes. It is competitively priced and providers can also offer quicker decisions on asset based finance than on traditional unsecured lending.
“Previously, this form of commercial finance had been associated with SMEs but we’re seeing increased appetite from the UK’s largest businesses to secure finance to fulfil growth plans and expand order books.
“Asset-based finance is now an established part of the commercial finance market and there is increased appetite from UK businesses to secure funding through this route. Whilst the availability of finance from traditional sources was relatively slow to recover from the credit crunch, the asset based finance market opened its doors to businesses of all sizes and there remains significant capacity to provide more finance to more UK businesses.”
Greater demand for businesses to secure finance against stock – up 22% in a year
The amount of asset-based finance secured by UK businesses against stock has jumped 22% in just a year, from £499m in 2014 to £607m last year.
The ABFA explains that businesses are looking to capitalise on increased demand from customers by drawing down finance against existing stock in order to fuel longer-term growth.
The ABFA adds that the use of factoring amongst SMEs has also increased by 3%, demonstrating that smaller businesses, whilst cautious, are also taking advantage of some of the funding that is available.
Jeff Longhurst explained:
“As a response to the uncertain economic climate, more clients are taking advantage of the additional services available to them, such as credit protection, which allows for peace of mind without restricting growth.
“We’ve seen a significant increase in payments made to clients under these types of facilities which provide assurance to SMEs that they will be protected in the unfortunate event of something going wrong with their debtors.
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 £260m in the past year to stand at £19.7bn at end of December 2015.
According to the ABFA the advantages of asset based finance include:
– Quick turnaround – as the funding is secured against invoices or other assets, funders can make quick decisions and provide almost immediate funding
– Flexibility – asset based finance can be used in numerous scenarios, such as to fund organic growth or for acquisitions
– Low stress and improved cashflow – helps to resolve the problem of slow payment from customers and can help manage the risks of bad debts
* Analysis of businesses with a turnover above £50m, as of 31st December 2015.
