Asset-based lending saw a dramatic rise in the three months to the end of June this year, highlighting the ongoing difficulties many small businesses have in obtaining finance. These trials mean that firms looking to expand or acquire other businesses are being curtailed in their plans, which is also a negative for the UK economy as a whole.
Demand for asset-based funding – the majority of which sees lending against unpaid invoices – has risen as a result of the trials of accessing overdraft facilities and term loans from high street banks.
The research – which was compiled by the Asset Based Finance Association – saw a record £18.9 billion borrowed from such lenders over the time period.
Jeff Longhurst, chief executive of the organisation, told the Financial Times: “We are seeing more and more businesses of all sizes and types taking advantage of invoice finance to fuel their growth, particularly as more traditional forms of lending remain subdued.
“More businesses are viewing their invoices as what they are – one of their biggest assets.”
The lending was utilised mostly by smaller businesses, with under a third of the total funding being taken up by companies with an annual turnover of more than £100 million. Overall, the total amount of invoice finance and asset-based lending rose by seven per cent during the second quarter of 2014, representing a rise from £17.7 billion in the previous three months.
While the majority - four-fifths - of asset-based finance is invoice finance, the remaining 20 per cent is lending secured against assets such as property or machinery.
Mr Longhurst added that the finance was a “proven tool for growth, enabling companies to increase their funding as they grow.
“What’s becoming increasingly clear is that asset-based finance such as invoice finance in particular, is the alternative to traditional lending for SMEs that the Bank of England and the Treasury have been looking for.”
Credit conditions in the UK remain tight for small businesses in particular, despite the range of schemes implemented to try and make obtaining financing easier. Despite the rise in asset-based lending, it has a long way to go to fill the decrease in more traditional methods of bank lending, which has fallen from £492 billion in June 2009 to just £348 billion today.
We'd love to see the high street banks recognise the importance of lending and improve access to funding for businesses. But until this happens, it looks like businesses are going to have to look for alternative sources of finance such as asset-based finance. 
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