Asset based finance is taking market share from bank overdrafts as a key source of funding for SMEs, according to Bank of England figures, and highlighted by the Asset Based Finance Association (ABFA).

£9.5bn was lent to small and mid-sized businesses in asset based finance in 2016 – up 3% from £9.2bn in 2015. At the same time the amount of outstanding bank overdrafts decreased by 2% to an average £12.4bn last year, down from £12.6bn in 2015.

Jeff Longhurst, chief executive of the ABFA, said, “SMEs are realising they can leverage the value of assets such as outstanding invoices for the direct benefit of their businesses – and there are a number of flexible options they can choose from. For example, within invoice finance they can either go for an invoice discounting facility where they manage their own credit control, or they may prefer invoice factoring, where the lender takes on the credit control and collections process on their behalf. The latter is often particularly attractive for smaller businesses with fewer internal resources.”

“Unlocking this capital gives SMEs the means to purchase new equipment, invest in new systems or expand premises and increase headcount in order to ramp up capacity and capitalise on new growth opportunities.It also gives them greater certainty about their financial position looking ahead, by developing on-going relationships with asset finance providers, based on a deep understanding of their current financial position and prospects.”

“While bank overdrafts can be withdrawn at short notice if companies are deemed no longer to need them, for instance during peaks in business, asset based finance is a longer term option, making it easier for companies to plan for the future.”

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By GlobalData