The amount of money advanced to the UK’s smallest businesses through invoice finance is skyrocketing, according to the Asset Based Finance Association
According to the Asset Based Finance Association, the amount of money advanced to the UK’s smallest businesses through invoice finance has skyrocketed.
ABFA chief executive Jeff Longhurst said small businesses are borrowing against unpaid invoices for growth plans, to expand order books and to increase cash flow to help manage the risk of irrecoverable debts.
This funding has increased in the face of the reluctance of conventional lenders to lend money to small businesses. Following the Brexit vote, it also proved an attractive way to hedge against currency fluctuations.
Margin: Badgequo chief executive Kai Arter has locked in euro rates
The ABFA, which represents the industry in the UK and Ireland, said loans reached £711million in the first quarter of 2016, a 63% increase from £435million for the same period in 2015.
He claimed the amount advanced was the biggest year-on-year increase “since the recession”.
Small businesses using invoice financing received an average of £52,000 in the first quarter, compared to an average of £32,000 in the same period of 2015.
Around 80% of asset-based financing is invoice financing, while the rest is asset-based lending, where in addition to debt, businesses can raise funds secured by a range of other assets they own, including inventory, property and machinery.
Following the EU referendum, Bibby Financial Services, the UK’s leading bill finance specialist, has seen an increase in enquiries, according to chief executive Mark Lindsay.
The ABFA said loans reached £711m in the first quarter of 2016, a 63% increase from £435m for the same period in 2015.
He said: “A lot of people are asking how we think the markets are likely to develop as they’re now looking to react to market volatility around currency exchange rates and uncertainty around international markets.”
One of the companies Bibby works with is 30-year-old cosmetics company Badgequo, based in Keighley, West Yorkshire, which imports its products from China and then sells them to UK retailers as well as 20 markets around the continent.
Prior to the Brexit vote, Bibby worked with Badgequo to fund a large purchase from its supplier, protecting the business from currency volatility.
This agreement allowed the company to guarantee its prices until December, thus ensuring security and certainty in its planning and forecasts.
It has also been able to lock in a euro exchange rate, as many of its products are sold throughout the EU.
Badgequo managing director Kai Arter said: “We have a substantial facility in place with Bibby which covers trade finance, for the purchase of stock from the Far East from our manufacturers.”
But it also covers exchange facilities. We buy dollars forward and we sell euros forward. So it really gives us the opportunity to protect our margin as we would in the normal course of business anyway.
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