Use of invoice financing increases by £ 8bn in a decade

According to the Asset Based Finance Association (ABFA), the body representing the invoice finance and asset-based lending industry in the UK and Republic of Ireland, there was a record £ 22.2 billion sterling of asset financing advanced to corporate clients. at the end of the fourth quarter of 2016, compared to £ 14.1 billion in the first quarter of 2007.

ABFA adds that over the same period, outstanding loans to traditional businesses fell 8% from £ 440.7bn in January 2007 to £ 406.9bn in December 2016 The current figure is 31% below the peak for corporate loan portfolios, which reached 591.4 pounds. billion in January 2009.

ABFA says that following the credit crunch, bill financing has become a crucial form of financing, as traditional forms of lending have become more difficult to obtain, with small businesses in particular having to turn to debt financing. full range of financing options available.

Since the end of the recession, ABFA has argued that asset-based financing has become a primary source of funding for many companies.

He points out that there has been a particular growth in the use of asset-based financing by large companies, with asset-based lending playing an important role in financing M&A transactions.

The number of businesses borrowing against the value of other assets, such as their plant and machinery, unsold inventory and real estate, has also grown substantially.

Jeff Longhurst, Managing Director of ABFA, said: “Asset-based finance was a lifeline for small businesses during the financial crisis, but it has become an engine of growth for businesses of all shapes and sizes. .

“For a lot of businesses, unpaid invoices are actually their greatest asset and can be the key to unlocking the finances they need to accelerate their growth.

“While many companies were initially drawn to bill financing during the credit crunch, they retained it as a key part of their funding model a decade later.

“Many large companies have also sought to charge financings to finance their acquisitions and have switched to using more assets than their invoices to finance their expansion. “

Around 80% of volume asset financing is invoice financing (factoring and invoice discounting), in which companies guarantee financing on their debtor portfolio, represented by their unpaid invoices.

The remaining 20% ​​is asset-based lending, in which, in addition to financing on their debit portfolio, companies can raise funds secured by a range of other assets they own, including inventory, real estate and assets. machines.

ABFA represents the Asset Based Finance industry in the UK and Republic of Ireland. Its members include UK and Irish banks, specialist and challenger banks, the specialist activities of some international banks and large corporations and a number of independent non-bank finance providers.

Use of asset-based finance

Traditional business loans

traditional loan

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