Asset-based lending hits £18.9bn record

Asset-based lending in the UK and Ireland reached a record £18.9 billion (€ 23.8 billion and $ 31.5 billion) in the second quarter of 2014. This was the biggest quarterly amount ever, according to new figures from trade body the Asset Based Finance Association (ABFA).

The rise has been fuelled by constraints on traditional lending to small and medium-sized enterprises (SMEs), it said, also publishing figures to show how it has fallen in the UK by more than a fifth over the last five years.

The growth in ABL has also been driven by a greater understanding by more companies about the alternative form of financing, in which businesses can secure funding against their unpaid invoices, it said.

Interestingly, larger companies, which make more than £100 million in revenues, accounted for almost a third of all advances at 31 percent. These companies are increasingly making use of ABL, as highlighted by Private Debt Investor in April.

Jeff Longhurst, chief executive of the ABFA, said in a statement: “We are seeing more and more businesses of all sizes and types taking advantage of invoice finance to fuel their growth, particularly as more traditional forms of lending remain subdued. More businesses are viewing their invoices as what they are – one of their biggest assets.

“Asset based lending is fast becoming a standard part of the finance suite for bigger businesses,” he added.

ABL increased by 7 percent from £17.7 billion to £18.9 billion, over the quarter between March and June 2014. It has risen by 10 percent over the last year, the ABFA showed.

The alternative form of lending is more established in the US and is gaining traction in Europe, particularly the UK. It still represents a small proportion of lending though.

According to the ABFA, traditional lending in the UK stands at £384 billion as at June 2014. It has fallen by more than a fifth over the last five years, from £492 billion as at June 2009 to £384 billion as at June 2014. Figures also show that the drops in lending are slowing however.

Longhurst said: “As the economic recovery hits its stride, having funding that automatically expands with your business is a huge bonus. The ability to increase the size of your borrowing facilities as your business grows is one of the biggest strengths of asset based finance.”

Eighty percent of asset-based lending is invoice financing, in which businesses secure funding against their unpaid invoices, while the other 20 percent represents a fast-growing area of asset based lending, in which businesses can raise money secured against a range of assets they own including inventory, property and machinery, the ABFA said.