Asset based lending leaps to £4.3bn all time high, Referral Scheme to push 2017 growth

By Daniel Lanyon on Monday 12 December 2016

Alternative Lending

The total market for asset based finance hits £20.7bn in 2016 as the Government Bank Referral Scheme launches.

The amount of alternative finance available under ‘asset based lending’ to UK businesses has reached a record high of £4.3bn, up 22 per cent in the past year, according to research by the Asset Based Finance Association, an industry trade body. 

There are two types of asset based finance, invoice finance and asset based lending. The two main types of invoice finance are factoring and invoice discounting.  Both allow businesses to release the working capital tied up in their unpaid invoices. 

In both the finance provider will normally purchase the client’s outstanding invoices, providing an immediate initial payment of the majority of the invoice, with the remainder (less the financier’s fees) paid to the client on payment by the debtor.  Factoring incorporates an added service element, with the financier normally managing the credit control and collections process.

Asset based lending allows broader mix of funding including revolving and amortising structures against the entire range of business assets including intangible assets such as brands and forward income streams.

The ABFA, which represents the invoice finance and asset based lending industry in the UK and the Republic of Ireland, says this fast-growing form of alternative finance is playing an important role in filling the funding gap for UK businesses, especially as economic Brexit uncertainty increases.

The value of finance available from stock alone increased from £2.4bn to £2.9bn in the past three months, while the amount of finance made available against plant and machinery reached £1bn. 

Increasing uncertainty resulting from the Brexit, it adds, means businesses could face longer payment delays and higher import costs with the fall in sterling’s value. 

Jeff Longhurst, chief executive of the ABFA, says businesses  are continuing to suffer from a lack of finance, with asset based finance offering a solution.

“There is a significant amount of capacity for even more lending through alternative finance that an increasing number of businesses are recognising as a source of funding. Asset based lending is now a mainstay of the business finance market, and all businesses will have an asset that they can use to secure finance, including plant, machinery, and even stock.” 

The ABFA adds that initiatives such as the launch of the Government’s Bank Referral Scheme. Nine of the UK’s biggest banks will be required to pass on the details of businesses who they are not able to support onto three platforms where ’alternative’ sources of finance can be offered, including asset based finance. 

“With the introduction of the new Bank Referral Scheme, an even larger number of businesses will recognise the options open to them and will be able to secure finance through asset based lending and invoice finance,” Longhurst. 

The ABFA says that the total amount of asset based lending and invoice finance secured by UK businesses reached a new record high of £20.7 billion, up 4 per cent in the past year from £19.9bn. 

It explains that around 80 percent of asset based finance is invoice finance, while the other 20 percent represents the fast-growing areas of asset based lending.  

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