Asset based finance - a funding option of choice
A Bank of England report* has revealed a large number of businesses are bypassing the banks in search of finance to fund their growth, as they fear that asking for additional credit could result in changes to existing lending agreements.
According to the banks’ network of regional agents who assess economic conditions around the UK, small and medium-sized businesses are looking to other viable funding streams such as invoice finance to get the money they need. Despite the Government’s best efforts to revive bank lending to businesses through the ‘Project Merlin’ deal, there remains a void between supply and demand of cash through traditional routes.
However, the same cannot be said for the asset based finance industry; the latest figures from the Industry Association (ABFA) reveal lending against assets rose by 9% to £12.4bn in the first quarter of 2011, with more than 55,000 businesses using invoice finance solutions in Q1 of 2011, up 15% on the same period during 2010.
Andrew Bullard, head of business at leading invoice finance broker Cashflow UK, says: “In their reluctance to agree to traditional forms of finance, such as overdrafts, the banks have created a vacuum which is becoming fast-filled by more flexible, tailored services offered from invoice financiers. In 2010, more than 33% of all small businesses needing finance were turned down by their bank, up from only 14 per cent before the financial crisis, according to Department for Business Innovation & Skills.
“For many small and medium-sized businesses, being turned down by their bank will feel like the end of the road. It is imperative therefore that they are aware of the more flexible invoice finance solutions available to them.
“In the current climate, selecting the most appropriate type of finance is crucial to maximising business potential. Restrictive credit facilities can lead to business stagnation and have a hugely detrimental effect on cash flow.
“With this in mind, financial advisers have an important role to play in providing firms with valued insight into the alternative funding solutions available from the finance industry, in addition to bank loans and overdrafts. As we have seen from the latest ABFA statistics, asset-based finance is growing in demand among businesses as owners realise the flexibility of such solutions and enjoy their benefits.”
As a leading finance brokerage specialising in factoring and invoice discounting our specialist team of financial experts at Cashflow UK are able to offer impartial advice and work with you to find your clients the best provider to match their needs.
* http://www.bankofengland.co.uk/publications/agentssummary/index.htm
