Asset-based lending's unstoppable rise


22 November 2010


Asset-based lending is becoming a popular tool for companies, due to its flexibility, immediacy and certainty of funding. Jim Banks learns more from John Bevan of the Asset Based Finance Association (ABFA) and head of sales finance at Barclays Corporate.


The current growth in the asset-based lending (ABL) market is not a blip caused by the credit crunch. It is part of a sustained, long-term pattern confirmed by the latest figures from ABFA, the industry association for service providers in the UK and Ireland.
ABFA members advanced £14.59 billion in Q2 this year, up 2% year-on-year, and total sales from firms using asset-based finance rose from £49.4 billion to £52.4 billion. At the same time, net borrowing from non-ABL sources has been falling. HM Treasury figures show the flow of net lending to businesses declined by £3.5 billion in June, down more than 8% year-on-year.

"Regardless of where the market is, ABL has always been an important source of funding and remains so," says ABFA's John Bevan, who is also head of sales finance at Barclays Corporate. "There is a consistent growth trend that shows no signs of ebbing."
The figures suggest that growth in ABL is not merely a symptom of the financial crisis of the past two years creating a need for alternatives to traditional bank lending.

"ABL is an important ingredient in the cocktail of funding elements that a company can use," says Bevan. "Flexibility is the key. ABL drives higher lending against a company's debtor book. It can leverage many assets including stock, equipment and property, and there is more breadth to the range of assets that are funded against. Confidence has risen in lending against non-traditional assets such as intellectual property.

"Immediacy is important, too. Plain vanilla invoice discounting is linked to sales, so if the invoices are there then the funding is there.
We are also seeing ABL being used in more strategic ways, such as funding management buy-ins or buy-outs. It gives certainty of funding. ABL will continue to be useful whether the market is in a downturn or in a period of aggressive growth, which both stimulate the need for working capital. It is not an alternative to bank funding, it is just another tool that complements and supports traditional bank products."

All companies great and small

A recent ABFA survey showed that most users of invoice discounting and factoring would recommend ABL to other businesses, not only because credit conditions in the UK remain tight, but because it also supports growth and business optimism as the economy improves. This sentiment is widely held among SMEs, many of which view ABL as essential, but it is also true that larger companies
are turning to it as a financing tool.

"We are also seeing more demand at the higher end of the market, including large and listed companies, which might put larger and more structured facilities in place," observes Bevan. "Interest is growing across the board, and across a much broader range of industry sectors."

ABFA statistics show ABL to be of great value for UK companies looking to expand into foreign markets to find new business opportunities. Firms using export invoice discounting report an all-time high quarterly figure of £2.96 billion in sales.

While ABL is not new, it continues to become a more prominent source of funding. That momentum is unlikely to slow, even when the economy improves and credit is easier to source.