Big businesses turn to asset-based finance

Big businesses are increasingly turning to loans secured against property and other collateral to fund investment, with the use of asset-based finance (ABF) reaching an all time high last year.

Companies with revenues of more than £100m secured funding worth £5.1bn under ABF, which includes loans secured against unpaid invoices, stock, machinery and property, in the year to March, according to the Asset Based Finance Association (ABFA).

This was up 16pc on the previous year, and five times the £1bn of a decade ago. Big companies’ use of ABF leapt during the credit crunch as they found bank loans and investment more difficult to come by.

According to the ABFA, 315 big businesses used asset-based finance compared to 81 in 2004. The practices of many ABF lenders have come under greater scrutiny as their popularity has increased, and some have criticised what they see as excessive fees and unscrupulous practices.

The ABFA introduced a code of conduct for its members last year to respond to the accusations.

“We’ve entered a new era for business funding, where asset based finance is an everyday part of the commercial finance toolkit for businesses of all sizes,” said ABFA chief executive Jeff Longhurst.

“There are general concerns about the availability of finance for businesses and the consequences this could have for the recovery. The asset based finance market in contrast - while it has grown sharply-still has unused capacity, and providers are actively looking to grow their lending books.”

The body said invoice-based finance, in which the provider often charges a fee to settle the invoice, remained the most popular form of ABF.

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