Asset Based Finance Increases By £8bn In A Decade
Recent research shows that the use of asset based finance by businesses throughout the UK and Ireland has risen by more than £8 billion in the 10 years following the credit crunch.
The latest asset based lending statistics from the ABFA
The Asset Based Finance Association (ABFA) revealed that there was a record high of £22.2 billion of asset-based lending advanced to client businesses in the final quarter of 2016. This increased from just £14.1 billion in the first quarter of 2007.
The ABFA statistics show that over the same 10-year period, business loans fell by 8% from £440.7 billion in January 2007 to £406.9 billion in December 2016.
What is driving the increase in asset based finance?
The statistics taken from ABFA research suggests that invoice finance solutions are seeing a surge in popularity.
With 80% of asset finance solutions being accounted for by invoice finance, including factoring and invoice discounting, businesses are now using this type of finance to secure funding against slow paying accounts.
Many organisations are taking the opportunity to use factoring companies for a quicker and more stable payment cycle.
The remaining 20% of organisations are relying on asset based lending according to the research. It appears that these businesses are using asset finance solutions to raise capital against their own assets, such as inventory, property and machinery.
Factoring statistics from the ABFA show that, due to the credit crunch of 2008, invoice finance became a vital form of funding, as traditional loans and other forms of lending became more difficult to access.
The ABFA also believes that asset based finance has become a more common choice for UK businesses since the recession hit. This surge in popularity is supported by the fact that traditional business loans have fallen out of favour over the last decade.
The ABFA statistics also show that there has been an increased use of asset-based finance by larger organisations, with asset finance playing a more significant part in providing funding for M&A deals specifically.
Why asset based finance is a lifeline for small businesses
“Asset based finance was a real lifeline for small businesses during the financial crisis”, says the ABFA, “but it has since gone on to become a driver of growth for businesses of all shapes and sizes.”
ABFA chief executive, Jeff Longhurst commented, “For a large number of businesses, unpaid invoices are actually their biggest asset, and can be the key to unlocking the finance they need to accelerate their growth. While many businesses were initially drawn to invoice finance during the credit crunch, they have retained it as a key part of their funding model a decade later.”
At the same time, many bigger businesses have also looked to invoice finance to fund their acquisitions, and have moved on to using more assets than just their invoices to finance expansion.
A closer look at year-on-year increase in asset based lending
Some 80% of all asset based finance last year comprised invoice finance, which accounted for £17.9 billion of overall funding provided to businesses. The other 20% was accounted for by asset based funding, secured against a range of other business assets.
At the same time, asset-based finance grew by almost 8% in the last quarter of 2016, which, says the ABFA, can be attributed to financial instability following the UK’s Brexit vote. This has meant businesses are turning to this type of finance in order to create a ‘cash cushion’.
Big businesses turn to asset based finance
The ABFA also argues that there is a new trend of some of the UK’s biggest businesses increasingly turning to asset-based finance to supplement that which they receive from traditional sources, such as overdrafts and loans, so that they can finance new projects, growth opportunities, and M&A activity.
Being able to release the value in a target company’s invoices can often be the critical factor in an acquisition, says the ABFA.
Invoice finance – what are your options?
At Anglo Scottish Asset Finance, invoice finance is another finance option we can provide that requires no further security but can provide a much needed cashflow injection for businesses of all sizes.
There are two main types of invoice finance: factoring and invoice discounting.
What is the difference between factoring and invoice discounting?
Factoring can provide a cash injection into the business of up to 90% of the invoice value, providing full credit control and sales ledger management, by sending relevant, timely letters and statements to customers to help speed up payments.
The main difference between factoring and invoice discounting is that the client retains control of the sales ledger management and credit control activity, but is still able to take advantage of cash advances of up to 90% of the invoice value. Typically a confidential service, invoice discounting can be for domestic or export sales.
At Anglo Scottish, our aim will always be to provide the business with an asset finance solution that is most cost effective in meeting its needs and thus helping it reach its full potential. Our approach with invoice finance and other asset based finance is no different.
If you would like more information on invoice finance and other cashflow solutions, then please get in touch with Anglo Scottish Asset Finance today.
Sources used: For further information on all factoring industry statistics from the ABFA, visit http://www.abfa.org.uk/news/statistics.asp