UK business borrowing against inventory doubles to record GBP 880m
16 June 2015
- Use of innovative form of business finance growing strongly
- Businesses’ use of asset based finance up 6 per cent to £18.9bn
Businesses are now using a record-high £880 million of funding secured against their inventory to fuel their growth, almost double the £444 million in use a year ago, says the Asset Based Finance Association, the body representing the asset based finance industry in the UK and the Republic of Ireland (see graph below).
The ABFA says that there has been particularly sharp growth in borrowing against the value of inventory , as more businesses shift away from using traditional loans and overdrafts to fund growth towards more innovative and flexible asset based finance.
The ABFA explains that asset based finance encompasses a wide range of fast-growing forms of finance, secured against business assets such as inventory, real estate, and plant & machinery, as well as it best-known form, invoice finance.
Jeff Longhurst, Chief Executive Officer of the ABFA, comments: “Businesses tie up billions of pounds in assets like inventory and invoices – this form of finance puts those assets to use.”
“They can turn these assets from being a drain on cash flow to a tool for growth.”
“Borrowing against the value of stock is becoming increasingly popular with bigger businesses that carry high levels of inventory. Rather than simply tying up cash, inventory can be used to unlock funds.”
“For these businesses, borrowing against inventory makes a huge amount of sense. They can get a quick decision from their funder, enabling them to purchase new equipment to increase sales or invest in the next round of product development.”
Use of asset based finance up 6 per cent in a year to £18.9bn
Businesses were using a total of £18.9 billion of asset based finance at the end of March 2015, up 6 per cent year on year from £17.7 billion in March 2014.
The ABFA says that invoice finance, where businesses borrow against the value of their unpaid invoices, remains the most popular form of asset based finance with businesses, accounting for 78 per cent of the total.
Says Jeff Longhurst: “Invoice finance has for many years now been an established alternative to traditional lending products for business looking to fund their growth, and these figures show that appetite from businesses remains strong.”
“It is now a truly mainstream finance choice, and one used by a huge number of growing businesses as part of a balanced approach to their funding.”
At the same time, figures from the Bank of England show that outstanding traditional lending to businesses fell to £375billion at the end of March this year from £383bn in March 2014 (see graph below).
Business borrowing against value of inventory doubles in a year…
…while traditional lending to businesses drops another 2% in a year and 32% since 2010
*All data as at 31 March