The invoice finance and asset-based finance industry has provided more finance to British businesses in 2017/18 than ever before, according to data from UK Finance.
Businesses looking for newer, more efficient ways of funding their growth has led to advances increasing by 13% year-on-year to just over £22bn, the highest figure ever for the industry. But despite the increasing popularity of asset-based finance across UK businesses as a whole, this hasn’t translated into an increased uptake among our growing number of SMEs – despite traditional funding options for these businesses remaining hard to come by.
Recent Close Brothers research found that a mere 16% of SMEs view asset-based finance as their ideal form of business finance, while the Federation of Small Businesses estimate that 79% of small businesses applying for financing are pursuing traditional bank loans or overdrafts, often with little success or with unattractively high interest rates.
That’s despite more than two-thirds of SMEs (69%) with an annual turnover of £10m or more having cash tied up in assets such as plant, property and stock – ideal for asset-based finance, which could easily allow liquidity to be unlocked for a significant number of these businesses.
This is an opportunity missed for many SMEs, as they often struggle to secure finance from traditional sources. This is due in part to an overemphasis on credit scoring and a reliance on data alone, meaning the real picture of the business is often missed.
Many businesses – but particularly SMEs – can have unpredictable changes in their revenue, cash flows and costs outside their control due to an increased vulnerability to changing market trends and preferences. This can cause problems for SMEs attempting to stay within the terms of loans, such as overdrafts, and make such financing more difficult to secure.
Asset-based finance, however, has the potential to protect against the financial fluctuations that many SMEs suffer from, given its ability to be provided against such a wide pool of assets – anything from intellectual property to machinery is included.
This can mean greater affordability, flexibility, fewer covenants and ease of access, with modern lending options able to be based on asset performance rather than solely on debtor value. Asset-based finance can also track growth in a business, so as turnover and asset base grow and the business expands, the availability of funding automatically follows.
The influx of new technologies available means it is also increasingly accessible for even the smallest SMEs as increased speed of service allows companies to receive the funds they need quickly, based on sophisticated data analysis. Solutions such as the HPD LendScape platform help automate and streamline these processes, enabling businesses to manage their facility and provide their data for analysis via a single platform, making the process easier to manage for resource-pressed SMEs.
But more needs to be done to encourage SMEs to utilise these benefits. Better awareness of what’s available can help, as while the asset-based finance landscape in the UK is rich and innovative, it can be confusing for businesses just starting out – according to Close Brothers, 72% of SMEs were unaware that they could secure financing on the basis of their turnover, rather than their credit rating.
Driving support, understanding and the uptake of asset-based finance could release that funding for our 5.7 million SMEs, enabling them to have the truly transformative effect on our economy that they deserve.
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Redefining SME banking technology
There has been significant change in the financial services sector in the past three to five years, one driven by new client expectations of customer experience, performance and speed of execution...
Unity Trust Bank reports 68 per cent profit rise
Unity Trust Bank increased its profits by 68% in 2018, having approved over £200m of lending to firms and projects...
OakNorth reveals plans for Manchester client-facing office
OakNorth’s Manchester client-facing office is expected to go live within two to three months, according to its chief operating officer Amir Nooriala (pictured above)...
SimplyBiz agrees to acquire Defaqto for £74.3m
The SimplyBiz Group has conditionally agreed to acquire the entire issued share capital of Regulus Topco Limited for a total consideration of £74.3m...
Training BDMs to the level required takes 'up to a year'
Investec Private Bank’s BDM Peter Izard (pictured above) has stated that if you don't invest in people, you won’t get the outcomes that you need...
A guide to 'Isa season'
If you’ve opened a newspaper or read the news online recently, you’ve probably come across the term ‘Isa season’ which focuses on how you should use your Isa allowance before the end of the tax year...
UTB introduces new first charge product
United Trust Bank (UTB) has launched a new first charge product aimed at customers who own their properties outright...
Price of flats down as much as 7.5% in last 12 months
The price of flats has fallen by as much as 7.5% in some parts of the UK, according to a report by Gatehouse Bank...
Is there a lack of understanding around e-money institution protection?
There’s an opportunity to improve the understanding and knowledge of financial protection offered by e-money institutions, according to Myles Stephenson, CEO at Modulr (pictured above)...
OakNorth Analytical Intelligence bolsters leadership team
Global fintech platform OakNorth Analytical Intelligence has hired Nikolai Varma and Rikard af Ekenstam to strengthen its leadership team...
Deutsche Bank and Commerzbank confirm merger talks
Deutsche Bank and Commerzbank have confirmed that they are engaging in discussions with an open outcome on a potential merger...