Finance 4 September 2015

Why asset-based finance is becoming so popular with entrepreneurial businesses

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UK firms now use £880m of funding secured against their inventory to fuel their growth – almost double that reported a year ago

The MD of Global Transaction Banking at Lloyds Bank Commercial explores how asset-based finance went from being an under-utilised source of funding to an immediate choice for many UK businesses.

More British businesses than ever before are turning to asset-based finance to support their growth plans, according to recent figures that prove the popularity of this previously under-utilised funding source is now rocketing.

The latest research from industry body, the Asset Based Finance Association (ABFA), shows that, as of the end of March, UK businesses were using almost £19bn of asset-based finance, up 6 per cent on the same point a year ago.

That certainly fits what we are seeing in the market. Our business customers our telling us that there are more growth opportunities out there for them, and with their confidence growing they are also exploring new ways to fund their ambitions.

When they do, it’s no surprise that funding options such as invoice finance, which many may not have heard of before, are attractive.

Invoice finance – the most popular form of asset-based lending, accounting for 78 per cent of the total – can give access to up to 90 per cent of the value of issued invoices within 24 hours, unlocking the value that businesses might not otherwise see for up to 90 days.

Furthermore, because these facilities are based on issued invoices, they can flex with the business and allow companies to respond quickly to growth opportunities that are appearing as the economy continues its recovery.

Other forms of asset-based lending enable firms to unlock the value tied up in stock, plant or property instead.

The figures from ABFA show that, while still some way behind invoice finance, some of these options are growing most quickly. For example, UK firms are now using a record £880m of funding secured against their inventory to fuel their growth – almost double the £444m reported a year ago.

ABFA says the bounce has primarily been driven by more businesses shifting away from using traditional loans and overdrafts.

I believe that, for a long time, too many businesses weren’t aware of the full range of finance options available to them, how they work and how they could quickly and simply give them the funds they needed to invest in growth.

That is no longer the case.

Growing numbers of entrepreneurial businesses are viewing asset-based finance as the best option for getting their investment plans off the ground quickly.

Asset-based lending suits a wide variety of businesses in varying stages of the growth cycle and can support planned, strategic decisions by turning assets into cash without businesses having to sacrifice equity.

Many firms also find that its intrinsic link to their cash flow means it is better positioned than traditional forms of lending to grow in line with revenues, enabling their business to capitalise on growth opportunities, without the need to constantly re-negotiate terms.

Support from our teams of expert, locally-based advisers also means the lending process can also be smoother and quicker than for other financial products.

That means you can promptly make important decisions, like hiring new staff, securing new premises or making moves on new markets.

At Lloyds Bank Commercial Finance, we expect the asset-based lending market to continue to grow strongly during 2015 as businesses look to expand, stabilise or refinance.

We also anticipate asset-based lending will be used more with private equity funding over the next year, as businesses and private equity houses gain more confidence and understanding about its benefits.

Now, more than ever, it is crucial to have the backing of a bank that can understand the opportunities you face and help you achieve your ambitions.

Donald Kerr is managing director of Global Transaction Banking at Lloyds Bank Commercial Bank.

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