Small businesses fuel record level of asset based lending
A record £18.9bn was borrowed from asset-based lenders in the three months to the end of June, according to figures compiled by the sector’s trade body, highlighting the problems smaller businesses face in obtaining bank credit.
Demand for this sort of borrowing, most of which comes in the form of lending against unpaid invoices, has been fuelled by the problems small businesses face in accessing term loans and overdraft facilities from high street banks.
“We are seeing more and more businesses of all sizes and types taking advantage of invoice finance to fuel their growth, particularly as more traditional forms of lending remain subdued,” said Jeff Longhurst, chief executive of the Asset Based Finance Association, which compiled the figures.
“More businesses are viewing their invoices as what they are – one of their biggest assets.”
However, just under a third of the total was used by companies with an annual turnover greater than £100m according to the ABFA.
The total amount of invoice finance and asset based lending rose by seven per cent during the second quarter of the year, up from £17.7bn in the previous three months, and 10 per cent more than the year to June.
Four-fifths of asset-based finance is invoice finance while the other 20 per cent is lending secured against assets, including inventory, property and machinery.
Despite numerous schemes and near-constant political pressure for banks to improve access to finance for businesses, credit conditions remain tight in the UK.
Asset-based lending has been on an upward trajectory since 2009, during which time traditional lending has fallen by a fifth. But it is still a small percentage of the total borrowing by businesses in the UK, which stands at £384bn.
Its growth has also been insufficient to fill the decline in traditional bank lending, which stood at $492bn in June 2009.
“Asset-based finance is a proven tool for growth, enabling companies to increase their funding as they grow,” said Mr Longhurst.
“What’s becoming increasingly clear is that asset-based finance such as invoice finance in particular, is the alternative to traditional lending for SMEs that the Bank of England and the Treasury have been looking for.”