Despite the ongoing economic
turbulence, latest figures from the Asset Based Finance Association
(ABFA) and Finance & Leasing Association (FLA) have underlined
the recent growth of the asset-based finance sector.
Last month the FLA announced that the asset
finance market grew by 9% in Q2 2012, with more than 50,000
businesses investing in new equipment. In addition, in June the
ABFA reported advances made to its members’ clients increased by 6%
in Q1 this year with client numbers reaching 42,000.
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The figures contrast with to the Bank of
England’s Trends in Lending report, which found that traditional
bank lending declined by a further £3bn in the three months to May.
Coupled with a rise in the cost of overdrafts and bank loans over
the same period, this places even more pressure on the new Funding
for Lending Scheme (FLS).
Launched last month to replace the National
Loan Guarantee Scheme, the £80bn initiative is designed to reduce
the cost of borrowing to SMEs and thereby stimulate bank lending.
However the FLS simply provides another example of the Government
promoting traditional bank finance at the expense of other
available solutions to help SMEs.
Hilton-Baird Financial Solutions’ most recent
SME Trends Index echoes this. Having questioned more than 450
business owners and finance directors in April 2012, results found
that users of asset finance, and particularly invoice finance,
continued to outperform those using other more generic solutions in
the preceding six months.
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By GlobalDataThe biannual survey takes into account various
factors including turnover, bad debt levels and Crown arrears to
calculate a financial health score for each business. This Business
Health Index provided an overall score of 0.54. For invoice finance
users, it was as high as 1.59, and while users of asset finance
products, including leasing, registered an average score of 0.43,
it was as poor as 0.07 for businesses relying on bank
overdrafts.
This trend was reflected throughout the survey,
across turnover, profitability and confidence. Yet asset-based
finance remains a relatively untapped market, with asset finance
and invoice finance used by only 20% and 18% of respondents
respectively. This compares to a much higher reliance on bank
overdrafts (47%), bank loans (25%) and, worryingly, business credit
cards (51%).
With Chancellor George Osborne already under
fire, there’s an awful lot riding on the success of Funding for
Lending. We would be encouraged to see more focus on tangible ways
to help businesses by exploring methods which will promote and
educate businesses about the asset-based finance sector.
Evette Orams is managing director
at Hilton-Baird Financial Solutions
