Asset based finance up 7% year-on-year

The amount of finance secured by UK businesses against hard assets such as inventory, machinery and property has increased by 7% in the last year, from £3.38bn to £3.63bn, according to the Asset Based Finance Association.

The ABFA said the rise in businesses securing asset based lending is part of the continued shift away from the use of traditional loans and overdraft facilities to fund business growth.

The ABFA added that businesses are increasingly attracted to the advantages of asset based finance such as the flexibility of finance options, the quick turnaround of decisions on finance and the boost to cashflow helping businesses manage the risks of bad debts. Under Basle III, asset based finance is considered less risky than overdrafts and, therefore, requires banks to hold back less capital for this kind of finance.

The ABFA explains that around 80% of asset based finance is invoice finance, in which businesses secure funding against their unpaid invoices, while the other 20 per cent represents the fast-growing area of asset based lending, in which, in addition to debts, businesses can raise funding secured against a range of other assets they own, including inventory, property and machinery.

Jeff Longhurst, chief executive of the ABFA, said: “UK businesses now have a greater understanding of how their assets can be used to unlock capital. They are successfully investing this into the growth of their business, whether that be increasing headcount or expanding their order book.”

“More businesses are benefiting from using asset based lending and securing finance to fund growth plans. Borrowing against assets has now become a more mainstream option for businesses of all sizes looking to unlock funding and fuel growth.”

UK businesses secured £358m against plant and machinery, an increase of more than a third (37%) in a year from £261m.

The ABFA added that securing finance against hard assets, such as plant and machinery, is now a primary choice of funding for business looking to capitalise on finance which is tied-up in assets.

The ABFA saidthat there has also been an increase in the amount of business finance secured against property, with businesses borrowing £146m, 14% higher than the £128m last year.