Asset based funding to UK and Irish businesses hits record £20 billion for the first time
14 December 2015
- 4% year on year growth of funds made available to SME’s
Funding to UK and Irish businesses secured against invoices and other assets has hit a record high of £20 billion 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 this is the first time the use of asset based finance has reached £20 billion and is an increase of 4% from the £19.3 billion businesses in the UK and the Republic of Ireland were accessing against assets a year ago. (see graph)
By way of comparison, lending to UK SMEs through overdraft facilities stands at approximately £10 billion as of June 2015*.
The ABFA explains that 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 businesses can raise money secured against a range of other assets they own, including inventory, property, machinery and even intangibles such as intellectual property.
Use of asset based finance at an all-time high of £20 billion
The ABFA says the growing popularity of asset based finance stems from its accessibility to the vast majority of UK and Irish businesses who have assets such as unpaid invoices against which they can borrow.
Finance based on a business’ existing assets frees up cash flow for investment or working capital; these types of finance are increasingly important with ongoing restrictions on lending through ‘traditional’ products.
Jeff Longhurst, Chief Executive of the ABFA, comments: “UK businesses are keen to invest for growth and are looking to their existing assets to unlock the funding they need to achieve it.”
“More and more businesses see unpaid invoices, plant and machinery as a potential source of finance rather than an impediment to cash flow. In addition, with asset based finance, the funds available track the growth in the business so senior management can focus on what they do best – running the business.”
“It is vital that UK businesses are making best use of their existing assets to take advantage of the healthy pace of growth in the UK economy, in order to maximise their own growth.”
Asset based finance funding businesses throughout the economy
The level of funding against just invoices is also at a record high at £15.7 billion.
The ABFA says increased use of asset based finance by larger businesses is a key driver of the trend. Businesses with a turnover of above £100m currently use £6.2 billion of asset based finance – 32% of the total, up from 26% five years ago.
Jeff Longhurst continues: “Businesses throughout the UK economy, across all sizes and sectors, are confident of using asset based finance to fund their growth and are increasingly alive to the possibility of leveraging their other assets such as plant and machinery.”
*Sources: Q2 2015, Business Finance Taskforce data.