Record levels of asset based lending shows businesses are ready for growth

Record levels of asset based lending shows businesses are ready for growth

Mike Scowen, who heads up Lloyds’ commercial finance operation in the North West, explains what new asset based lending statistics are telling us about the state of the British economy.

The number of British businesses taking advantage of asset based finance to support their growth ambitions has increased, according to new figures that prove the popularity of this fast-emerging source of funding.

The latest research from industry body, the Asset Based Finance Association (ABFA), showed that the overall amount of funding provided to business through asset based finance rose by £260m in the year to December, 2015, to £19.7 billion.

This comes at a time when the UK’s economy is expanding at an encouraging rate, with more than half (51 per cent) of businesses now expecting trading conditions to improve, against just five per cent who expect them to deteriorate, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

The same report found that business confidence had rebounded to 43%, in keeping with the ABFA’s figures which suggest that businesses are planning to invest in growth this year, and are increasingly exploring previously underutilised forms of funding to do so.

Despite the upturn in asset based finance, the latest Lloyds Bank Business in Britain research shows that awareness of this type of funding is still low, suggesting that businesses in the UK are still not fully exploiting the diverse range of funding options available to them.

So what should businesses be considering when shopping around for different forms of finance?

Invoice finance – the most popular form of asset based lending – continues to make considerable gains, with the number of British businesses with turnovers topping £50 million using this option jumping by 25 per cent in a year. This option is useful for growing businesses in a recovering market. It quickly makes available outstanding capital that can be used to pursue investment opportunities.

As a result, it accounts for 80 per cent of the total use of asset based finance in the UK, giving access to up to 90 per cent of the value of issued invoices within 24 hours and releasing funds that a business might not see for up to three months. It also remains an integral part of the financial framework of seasonal businesses, many of which rely on it to protect their cash flow during quieter times.

Other forms of asset based lending enable firms to unlock the value tied up in its stock, inventory or property. According to the ABFA figures, the use of such funding is steadily increasing, with finance secured against stock, in particular, rising by 22% in a year.

These encouraging figures make it clear that growing businesses are looking to capitalise on welcome increases in customer demand by using untapped assets to access new funding.

In our view, some businesses have neglected to take advantage of the wide variety of funding options that allow them to get investment plans off the ground quickly for far too long.

However, our latest Business in Britain survey showed that only a third of UK firms are aware of asset based lending. This has to change.

Like invoice financing, funding secured against physical assets and stock suits firms at every stage of the growth cycle, providing an option that quickly frees up investment capital without having to sacrifice equity to a third party.

The financial flexibility that asset based lending gives a business is also beneficial to firms looking to grow at their preferred pace. A revolving facility backed against stock or inventory allows firms to capitalise on growth opportunities without having to renegotiate terms, a common and time-consuming roadblock for many forms of traditional financing.

At Lloyds Bank Global Transaction Banking, guidance from our teams of specialist, local advisers means the lending process can also be smoother and quicker than for other financial products. It also means our customers can respond to growth opportunities quickly, like hiring new staff, entering a new market or purchasing new premises.

It is critical to have the support of a lender that appreciates your ambition and is dedicated to providing relationship-led banking that will help you establish the best financing options for your businesses growth plans.