The rise of asset based finance: is it right for your business?

 

Asset Based Finance Association (ABFA) CEO, Jeff Longhurst, examines the drivers of continued growth in asset based finance, and outlines the unique support it offers to expanding businesses.

More and more UK businesses are securing asset based finance to help them unlock growth. In fact, usage of asset based lending and invoice finance has reached an all-time high in Britain with the UK consistently boasting the biggest uptake of pure invoice finance in the world.

 

Why is asset based finance growing in popularity?

The economic and political uncertainty caused by June’s EU referendum result was undoubtedly a contributing factor to this impressive growth.

Businesses are concerned about the prospect of longer payment delays and higher import costs given the weak pound. Decision-makers are therefore looking for new ways to leverage their assets to provide a continued source of working capital, and as a result asset based finance is growing in popularity.

What is new?

Innovation is also playing an important role in the continued growth of asset based finance, with ABFA members looking at lending against assets such as brand or intellectual property (IP) as well as traditional stock and machinery. While pure invoice discounting and factoring account for around 80% of the UK’s asset based finance market, the rapidly-expanding area of asset based lending now contributes 20%.1

What is the role of asset based lending?

ABFA sees a number of reasons why more businesses are turning to asset based lending. For example, as a form of alternative finance, it is playing an important role in filling the funding gap that many companies currently face. This includes being used more strategically as part of a blended funding package to support mergers and acquisitions, and growth generally.

The Government’s Bank Referral Scheme, which was launched in November 2016, also seems certain to increase awareness of – and access to – asset based lending, and particularly invoice finance.

Under the scheme, nine of the UK’s biggest banks must pass on the details of any business whose funding needs cannot be supported through traditional methods to three platforms where alternative sources of finance can be offered. This includes invoice finance and asset based lending.

How might businesses benefit?

Of course, asset based finance, whether that’s lending against debtors through invoice finance, property, equipment or stock, isn’t right for every company or every situation. If a business is simply looking for a short-term fix, or isn’t specifically seeking growth, there are perhaps more suitable sources of funding.

But if a business is looking for cash to help strategically at any stage in its life cycle – from the minute the first invoice is raised, to the moment the company is sold on – then asset based finance could offer a strategic solution to getting the right amount of working capital and helping to unlock growth.

Where next for asset based finance?

Given the benefits on offer and the perfect storm of market conditions, the momentum behind asset based finance looks set to build. Furthermore, as the Government’s Bank Referral Scheme takes off and asset based lending matures, our hope is that even more businesses will take advantage of asset based finance to achieve their growth ambitions.

Is asset based finance right for you?

Benefits of invoice finance

  • Speed

    Take advantage of rapid, usually on the day of submission, access to the cash tied up in sales invoices.

  • Certainty

    Stabilise cash flow by reducing uncertainty – bad debt protection is available too.

  • Timely

    Overcome the problem of late payments and free up business time normally spent chasing payments.

  • Scalable

    Grow your working capital in line with your sales.

Benefits of asset based lending

  • Protects equity

    By leveraging assets more effectively, asset based lending offers the ability to raise significant funds without sacrificing equity.

  • Price

    Compares favourably to traditional funding methods, whilst releasing significantly more capital.

  • Cost-effective

    Improve your working capital and turn your assets into cash to support your plans.

  • Scalable

    Your available finance grows in line with your business. It can be used as part of a wider funding package for growth.

  • Flexible

    Manage cash flow fluctuations and respond to your business needs.

  • Diverse

    Raise funding on assets not typically allowed as security on a classic loan.

Useful links

Find out how we can support your working capital needs
http://www.lloydsbankcommercialfinance.co.uk/

For more information on asset based finance solutions, visit https://www.abfa.org.uk/  

Footnotes

  1. https://www.abfa.org.uk/statistics/2016/Q3 2016/ABFA Statistics Q3 2016.pdf

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