Record sales of asset based finance to small and medium enterprises are to be welcomed, but too few SMEs are aware of how such funding could accelerate their growth, the merchant and corporate bank Close Brothers is warning.
Close Brothers said that while many SMEs are increasingly confident about their prospects for the year ahead, lack of access to funding threatens to hold them back, potentially dampening broader economic growth.
Close Brothers’ warning follows new data from the Asset Based Finance Association showing that asset-based lenders made record sales during the final quarter of 2016, with £79.3 billion worth of facilities agreed with clients. That was 3 per cent up on the same period of 2015 and an all-time high.
SMEs and other borrowers had asset-based finance balances outstanding of £22.2 billion at the end of last year, the ABFA said, a 13 per cent increase on 2015; a further £39.5 billion was available for these businesses to draw down when needed.
David Thomson of Close Brothers Invoice Finance says the figures underlined the enthusiasm of SMEs to invest for future growth, but warned that too many businesses were missing out.
‘Funding such as invoice finance and other types of asset based lending can provide crucial capital as businesses seek to invest for their future, and the increased sales of these products reflects growing confidence amongst SMEs,’ Thomson says.
‘However, our own research suggests that while awareness of this type of funding has increased in recent times, many businesses still don’t understand the opportunities available to them.’
In fact, the quarterly Business Barometer research produced by Close Brothers, which provides a snapshot of SMEs’ attitudes and priorities, suggests that 72 per cent of businesses are currently unaware of finance options based on turnover rather than credit rating. Only 44 per cent would consider asset-based lending over a loan or overdraft, the research shows.
This lack of awareness represents a potential stumbling block for SMEs seeking to grow. While surveys published recently by the Federation of Small Business and the British Chambers of Commerce suggest that SME confidence about the year ahead has improved significantly since last summer, when the Brexit vote caused uncertainty and anxiety, Bank of England figures suggest that bank lending to these firms continues to decline.
And even for businesses not struggling to secure bank finance, asset-based finance may represent a more flexible and appropriate funding solution.
‘Asset-based finance provides growing SMEs with a scalable funding stream that is appropriate to their individual circumstances, offering vital headroom as they explore new opportunities,’ Thomson adds.
‘Record sales of such products are therefore to be welcomed, but our research suggests many more SMEs could benefit from looking beyond the traditional options for funding; increased take-up of funding such as asset-based finance could really super-charge their growth.’