UK Invoice finance grows by 29% since 2009/10 as “traditional” lending products fall by 19%

The UK Asset Based Finance Association (ABFA) reports that the supply of asset based finance to UK businesses has hit a record high in the last 12 months with an average of £17.5bn in use at any one time by businesses over the last year*.

This is 9.4% up on last year’s average and up 29% from the £13.6bn of asset based finance in use at the height of the recession in 2009/10.

In contrast, the average value of traditional forms of funding supplied to businesses fell by 5% over the same period**. Net traditional funding to businesses is now down by almost £100 billion since 2009/10, falling 19% from £485bn to £391bn.

The ABFA explains that 80% of asset based finance is invoice finance, in which businesses secure funding against their unpaid invoices, while the other 20% represents the fast-growing area of asset based lending, in which businesses can raise money secured against a range of other assets they own, including stock, property and machinery.

The ABFA reports that these figures show that invoice finance is now a mainstream funding product for businesses, playing a major role in filling the SME lending gap created as banks remain restricted in the levels of finance they can provide to businesses.

Martin Morrin, chairman of the ABFA, (pictured) said: “Invoice finance is playing a bigger role than ever in funding British businesses’ growth, and has truly stepped into the mainstream of business funding.

“Since the credit crunch, invoice finance has become an even more important source for SMEs for funding as they struggled to access traditional term loans. Now, as the economy recovers, more and more businesses are using it to fund their growth, and that’s pushed demand for funding to levels we haven’t seen before.

“More and more businesses are now seeing their invoices as a significant untapped asset they can borrow against, and that banks and other institutions actively want to lend against. It has been the business funding success story of the last few years.”

He added: “The government and the business community have been looking for a new mainstream financial product with the potential to fill the gap created by the continued lack of term lending. These figures show that asset based finance, and invoice finance in particular, is that product.

Morrin believes that many businesses do not realise that the invoices that they have outstanding with customers are often the most valuable asset owned by the business, and that banks and other funders will willingly lend against them. Generally speaking, loans that are not secured against assets have become harder to find over the last five years.

* Year end: March 31 2014. Based on loans outstanding at one time. Source: ABFA

** Average net bank loans outstanding to private non-financial corporations, year-end: March 31 2014. Source: Bank of England