Asset finance closing in on bank overdraft’s market share, as businesses switch sources

£9.5bn was lent to small businesses via asset based finance in 2016, a 3% increase from £9.2bn in 2015

Asset-based finance is closing in on bank overdraft’s market share as a source of finance, as small businesses begin to explore more alternative methods of raising capital.

According to a report by the Asset Based Finance Association, £9.5bn was lent to small businesses via asset based finance in 2016, a 3% increase from £9.2bn in 2015.

In contrast, the number of business bank overdrafts decreased by 2% to an average of £12.4bn in 2016, down from £12.6bn the year previous.

It’s suggested that businesses are increasingly seeing asset based finance as a suitable way of raising finance – as many traditional lenders, such as banks, are hesitant to lend to smaller firms.

Asset based finance enables businesses to secure funding against a diverse range of assets, including physical objects such as equipment or inventory, or less tangible objects such as software.

Jeff Longhurst, chief executive of the ABFA, said:

“More and more small businesses are replacing traditional overdrafts with asset based finance – it is now a major part of the small business lending space.

“Businesses are realising they can leverage the value of assets such as outstanding invoices for the direct benefit of their businesses – and there are a number of flexible options they can choose from.

“For example, within invoice finance they can either go for an invoice discounting facility where they manage their own credit control, or they may prefer invoice factoring, where the lender takes on the credit control and collections process on their behalf. The latter is often particularly attractive for smaller businesses with fewer internal resources.”

Should your business consider asset finance? Read our guide here and find out.

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