The third quarter of 2014 was the biggest on record for use of asset based finance, with £19.3bn (€24.5bn) of funding in use by businesses at the end of the quarter according to the UK and ROI trade body Asset Based Finance Association (ABFA).
This was up 12% on the £17.2bn in use during the same quarter a year earlier.
ABFA said businesses were drawing 37% more in funding through asset based finance (invoice finance and asset based lending) than the £14.1bn recorded during the recession in December 2009.
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Figures from the Bank of England showed that outstanding bank lending to businesses fell to £381.5bn at the end of September, down 2.6% over the past year and the lowest level it’s been since June 2006. Banks now provide over £100bn less in funding to British businesses through traditional term loans than they did five years ago, a fall of 21% from £483bn to £382bn.
ABFA said this is prompting more businesses to recognise that their unpaid invoices could be one of their biggest assets, and that asset based finance could help them unlock significant amounts of working capital.
£5.8bn, 30% of the total amount of asset based finance provided in the third quarter of 2014, was used by businesses with an annual turnover of £100m or more, up 29% from the £4.5bn in the same period in 2013.
80% of asset based finance by volume was invoice finance (factoring and invoice discounting), in which businesses secure funding against their debtor book, represented by their unpaid invoices. The other 20% represented the fast-growing area of asset based lending in which, in addition to funding against their debtor book, businesses can raise money secured against a range of other assets they own, including inventory, property and machinery.
Jeff Longhurst, chief executive of the ABFA, said: “Business confidence is returning and order books are growing, but ‘traditional’ lending is at its lowest level in more than eight years, and is still falling.
“For SMEs, invoice finance can often be the quickest and most easily-accessible form of funding. Unpaid invoices can be the key to unlocking the finance they need to invest in increased capacity, manpower or product development, and take advantage of the opportunities they have to invest and grow.”
“For many larger businesses, asset based lending has become an attractive choice for funding as they recognise the benefits over more traditional forms of funding. Access to more funding more quickly means that asset based lending can be put to work to give businesses a crucial edge.”
