Record rise in use of asset based finance
Asset based finance, a finance solution that enables businesses to advance funds against the value of a variety of assets, has been growing in popularity – particularly since the credit crunch.
New figures from the Asset Based Finance Association (ABFA) have revealed a new record in the volume of funding provided by the likes of invoice finance, factoring and invoice discounting in the UK market.
During the final quarter of 2016, £22.2 billion was advanced to the sector’s clients, which represents a 13% year-on-year increase.
Why has popularity grown?
According to the ABFA, the primary reason behind this rise in popularity is the gradual movement away from traditional funding such as overdrafts and bank loans.
As awareness increases, businesses seize growth opportunities and finance new projects and merger and acquisition activities, asset based finance has proved a popular option due to the additional benefits it provides.
Another factor affecting these results could be the UK’s pending exit from the EU, as a 7% quarterly rise in borrowing was recorded in Q4 2016 as businesses seek a ‘cash cushion’ due to economic uncertainty.
The ABFA revealed that 80% of all asset based finance is made up of invoice finance, which sees funders release up to 90% of an invoice’s value within 24 hours of it being raised. (Download your ultimate guide to invoice finance here).
The other 20% accounts for asset based lending, whereby funds are released against the value of other business assets, including plant, machinery, property and other business inventory.
Interestingly, the last few years has seen an increase in use amongst the UK’s larger businesses. This is enabling them to fund growth through merger and acquisition activity. Overall usage amongst larger firms has increased from £6.7bn to £8.1bn in the year to Q4 2016, an increase of 21%.
A solution for all
Asset based finance is clearly shown by these figures to be benefiting businesses of all shapes and sizes. So why are businesses continuing to ditch their loans and overdrafts in favour of it?
- Flexibility – Asset based finance enables you to bridge any unexpected cash flow gaps and overcome the uncertainty of late payment which could put a business at risk.
- Growth – Because funding is released against invoices, the amount of funding a business can access means the facility grows in line with the business, allowing companies to take on new orders without tying up cash flow.
- Security – The benefits of consistent and reliable cash flow provide an extra layer of stability, while the funding that’s released can be re-invested into the business, or used to settle day-to-day expenses.
- Protection – As the challenge of getting paid on time by customers remains a significant challenge for businesses, a dedicated sales ledger management service and optional bad debt protection are major benefits to businesses using invoice finance.
- Availability – As the figures show, asset based finance is available to businesses of all sizes. The key is knowing which facility would best benefit your specific requirements.
Jeff Longhurst, Chief Executive of the ABFA has commented: “Asset based finance is already well used among SMEs, but now larger businesses are well aware of the opportunities it provides them. Being able to release the value in a target company’s invoices can often be the critical factor in an acquisition.
“All sizes of UK businesses need to be aware of the possibilities and opportunities that asset based finance can provide them beyond what traditional sources can offer them.”
If you would like to find out more about asset based finance, our team will be able to discuss the ways in which your business could benefit. They can be reached on 0800 9774833 or emailed at email@example.com.