Assets the Key to Unlocking Doors to Funding; ASSET-BASED FINANCE
New research shows that more and more companies are borrowing money against outstanding invoices, premises, equipment, machinery, fleet and even a brand - to ensure the longevity and security of their businesses.
Kate Sharp, chief executive of ABFA, talks about the growth of the industry, how it has opened the doors for Arms to trade internationally and how it is helping to maintain a consistent cash flow in an otherwise turbulent time
You could be forgiven for thinking that in the midst of tightening credit control, securing additional funding is impossible.
However, there is another avenue of finance for businesses, that over the last quarter has become more and more popular with local companies in order to fund business activity and growth and that is asset-based finance.
As the latest ABFA figures show the industry has grown by a massive 15 per cent in just the six months from January to June 2008.
The industry advanced over pounds 17.3billion against invoices, stock, property and other trading assets worth a total of pounds 31.2 billion.
Over the same period, the value of stock used to secure advances totaled pounds 805million while the value of property stood at pounds 567million. Total advances against assets other than debt receivables amounted to pounds 840million at the end of the second quarter.
This significant growth has exceeded that of traditional lending to private non-financial organisations which grew by just 13.2per cent over the same period.
A recent economic report commissioned by the ABFA highlights the lack of liquidity in the market as a result of the central banks being reluctant to inject liquidity into the markets.
They have experienced losses on mortgaged-based securities and collateralised debt obligations and are making efforts to rebuild capital and retain liquidity.
As a result, they are reluctant to lend among themselves and to non-banks.
The asset-based finance industry, on the other hand, is ideally positioned to continue to be able to lend despite widespread deep financial frustration.
Many ABFA members are independent financial institutions, or as subsidiaries of banks, the asset-based finance division offers the banks a lower risk loan option, which they are still happy to offer. …