UK business borrowing against hard assets rises 7% in a year to record high
The amount of finance secured by UK businesses against hard assets such as inventory, machinery and property has increased by 7% in the last year, from £3.38bn to £3.63bn*, 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 explains that the rise in businesses securing asset-based lending is part of the continued shift away from the use of traditional loans and overdraft facilities to fund business growth.
The ABFA adds that businesses are increasingly attracted to the advantages of asset-based finance such as the flexibility of finance options, the quick turnaround of decisions on finance and the boost to cashflow helping businesses manage the risks of bad debts. Under Basle III, asset-based finance is considered less risky than overdrafts and, therefore, requires banks to hold back less capital for this kind of 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, said:
“UK businesses now have a greater understanding of how their assets can be used to unlock capital. They are successfully investing this into the growth of their business, whether that be increasing headcount or expanding their order book.
“More businesses are benefiting from using asset-based lending and securing finance to fund growth plans. Borrowing against assets has now become a more mainstream option for businesses of all sizes looking to unlock funding and fuel growth.”
UK businesses secured £358m against plant and machinery, an increase of more than a third (37%) in a year from £261m.
The ABFA adds that securing finance against hard assets, such as plant and machinery, is now a primary choice of funding for business looking to capitalise on finance which is tied-up in assets.
The ABFA says that there has also been an increase in the amount of business finance secured against property, with businesses borrowing £146m, 14% higher than the £128m last year.
The British Business Bank and ICAEW Corporate Finance Faculty, in association with the ABFA and partners across the business finance industry, have just launched the new Business Finance Guide. The interactive website platform will considerably improve usability for UK businesses and make it easier for businesses to identify the funding solutions that are most appropriate for them.
The new Business Finance Guide is available here: http://www.thebusinessfinanceguide.co.uk
The amount secured through asset-based lending has increased rapidly since 2012
* Q1 2016 compared to Q1 2015.