Asset–based financing of UK business, an activity that has been boosted by a desire for alternative sources of funding as banks have squeezed lending post-2008, grew markedly last year, figures show.

Asset–based financing of UK business, an activity that has been boosted by a desire for alternative sources of funding as banks have squeezed lending post-2008, grew markedly last year, figures show.

The use of asset-based finance by businesses with an annual turnover of £100 million ($170.1 million) or more rose 16 per cent in 2013 from a year earlier, up to £5.1 billion, according to the Asset Based Finance Association. The group represents the asset-based finance industry in the UK and the Republic of Ireland.

Such funding includes invoice finance, in which businesses secure funding against their unpaid invoices, and asset based lending, in which businesses can raise money secured against a range of other assets they own, including stock, property and machinery.

While the statement of ABFA doesn’t say so explicitly, such financing can be seen as an example of the kind of alternative funding, sometimes known as “shadow banking”, that has proliferated since conventional bank lending was hit by tougher capital rules imposed in the wake of the 2008 market crash. (To see a recent article on shadow banking, click here.)
 
At the end of March , 315 big businesses in the UK and Ireland were using asset-based finance, compared with 277 a year ago, and just 81 in 2004. ABFA said the sector is becoming as popular as it already is the US and where it is seen as a “mainstream” area.

There are two broad types of asset-based finance. With invoice finance, this is where firms can raise cash against unpaid invoices, enabling them to operate without having to wait for clients to settle accounts; this is the most popular form. Currently, this is the most popular form of asset based finance. If required, providers can also take on the responsibility for the settlement of the invoice for an administrative fee. The other form is asset-based lending: A mix of funding including revolving and amortising structures against the entire range of business assets. Traditionally advances are available against debtors, stock, property, plant and machinery, but can be arranged against intangible assets such as brand and forward income streams.