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ASSET BASED FINANCE DEMAND BOLSTERED BY TIGHTER CREDIT MARKETS
As the money market continues to tighten, UK businesses are increasingly turning
to their assets to release cashflow to fund business activity and growth.
The latest statistics from the Asset Based Finance Association, the trade association for the UK asset based finance industry, shows that members have advanced over £15 billion to 48, 273 companies at the end of the third quarter. Client numbers and sales have grown by 11 per cent since September 2006.
Whilst the majority of capital released has been via outstanding invoices, the figures show that the amount lent against other assets has increased by one third in the last year. A large proportion of this has been driven by a 55 per cent increase in the funds advanced against stock.
Correspondingly, the number of companies using asset based lending has grown by 20 per cent since September 2006. Stock finance has also experienced an increase in demand of 13 per cent.
Interestingly the quarter three results also showed a 60 per cent increase in the number of clients within the transport sector turning to asset based finance. Another sector to increase its usage of asset based finance is the construction industry which witnessed a 13 per cent jump in client numbers in the last quarter, with numbers nearly trebling since the same time last year.
Kate Sharp, Chief Executive of the ABFA comments: "The latest results give an interesting insight into how movements in the economy are affecting funding decisions being made by UK SMEs and large corporate organisations
"The impact of the sub-prime mortgage crisis has meant that there is less cheap debt available and there has been a general tightening of lending conditions. As a result, companies are examining their balance sheets more closely to identify where capital is tied up and are becoming more aggressive about how they can utilise their assets to fund the business.
"Secondly, the ongoing petrol price hikes has contributed to soaring overheads. Not surprisingly it is companies within the transport sector that have been hardest hit and are looking for alternative and more flexible means of funding. Hence, our members have seen a massive increase in the number of businesses within this sector turning to asset based finance. "
The ABFA’s third quarter results also revealed that companies with a turnover
greater than £1 billion have increased their appetite for asset based
finance and have been advanced £3.2 billion this year. This figure increased
by £456 million in one quarter alone and could be attributed to a greater
number of large corporates using asset based finance to help finance M&A’s
as private equity and other forms of debt are increasingly difficult to secure.
Other headline results from the quarter three statistics include:
– ABFA members have advanced £14.5 billion against debt at the end of
September, which is an increase of 15 per cent compared to last year.
– The total client sales within export factoring have grown by 38 per cent since
September 2006.
– Average debtor days have increased in the last quarter from 59.1 days for
factoring clients to 63.3 days, whilst discounting clients reported an average
debt turn of 59.5 days compared to 57.9 days.
– ABFA members have lead 53 syndicated deals in 2007 compared to 42 deals in
September 2006.
For the full results please click here