Increased funding for merger and acquisition activity has seen a spike in asset based finance for UK businesses.
Asset based finance to businesses is up 13 per cent since last year, hitting an all-time high of £22.2 billion, rising from £20.6 billion the previous year, says the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
The ABFA says that a key driver of this rise is that the UK’s biggest businesses are increasingly turning to asset-based finance, supplementing the finance they receive from traditional sources such as overdrafts and loans, to finance new projects, growth opportunities, and merger and acquisitions (M&A) activity.
Large businesses have increased their usage of this type of finance by 21 per cent in the last year, from £6.7 billion to £8.1 billion.
The ABFA explains that a major driver behind the increasing use of asset-based finance by larger businesses is its key role in funding their M&A activity. Asset based finance is now being regularly used to fund significant M&A transactions by allowing businesses to borrow against the value of the target firm’s invoices.
Asset based finance has grown by seven per cent in the last quarter of 2016, up from £20.6 billion which can be attributed to financial instability following the Brexit vote, that has meant businesses are turning to this type of finance in order to create a ‘cash cushion’.
The ABFA says that 80 per cent of asset-based finance is made up of invoice finance, in which businesses secure funding against their unpaid invoices. This accounted for £17.9 billion of overall funding provided to businesses last year.
The other 20 per cent represents the fast-growing area of Asset Based Lending, in which in addition to debts, businesses can raise funding secured against a range of other assets they own, including inventory, property, and machinery.
Jeff Longhurst, chief executive of the ABFA, comments, ‘Larger businesses are increasingly using asset based finance in innovative ways to fund their growth and M&A activity.
‘Asset based finance is already well used amongst SMEs, but now larger businesses are well aware of the opportunities it provides them. Bring able to release the value in a target company’s invoices can often be the critical factor in an acquisition.
‘All sizes of UK businesses need to be aware of the possibilities and opportunities that asset based finance can provide them beyond what traditional sources can often offer them.’