Asset-based finance can open the door
to much needed capital as banks remain cautious to lend, says
Evette Orams
Much
continues to be made of the UK’s deteriorating credit outlook and
businesses of all sizes, particularly SMEs, are finding it
difficult to access funding to meet their day-to-day commitments
and invest in their future.
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News that Project Merlin failed to have the
desired effect in 2011 came as another blow, as did the latest Bank
of England Trends in Lending report, which stated that
traditional bank lending to businesses with a turnover of under £1m
fell by 35% in the three months to November 2011.
Many will harbour hopes that the government’s
credit-easing proposals and ongoing efforts to return the UK to
sustained growth will improve matters. However there’s no escaping
the fact that overdrafts and bank loans remain extremely difficult
to access.
Fortunately, the Asset Based Finance
Association (ABFA) has once again revealed that help is at hand.
Its Q4 2011 figures showed that advances rose by 7% on an annual
basis to £15.8bn. Crucially, client numbers among the ABFA’s
members rose by 1% to 41,496 over the same period, with almost half
the total clients turning over less than £1m.
By releasing cash against the value of a range
of business assets, asset based finance is fast becoming the weapon
of choice to open the door to much needed capital. At its core is
an invoice finance facility, which releases up to 90% of an
invoice’s value within 24 hours of its issue. It can additionally
incorporate a dedicated sales ledger management service and even
bad debt protection to provide a shield against protracted default
and bad debt.
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By GlobalDataFacilities can further release cash against a
range of other assets on the balance sheet, including stock,
property, plant and machinery. While advances against pure invoice
finance facilities also rose by 7%, advances against plant and
machinery increased by a staggering 84% year-on-year.
The result is that businesses can gain access
to the cash that’s otherwise tied up and therefore unable to be
invested into securing new business. This was demonstrated by
clients’ sales rising by 9% over the same period to £62.3 billion
in spite of the wider challenges facing UK businesses at
present.
What these figures demonstrate is that, instead
of simply approaching the bank for an extension to their overdraft
or a new loan, many businesses are looking at asset based finance
to help them through their current difficulties.
