All the talk may be about whether the Funding for Lending scheme and the British business bank will improve small business lending in the UK, but there is one form of SME funding that is already achieving this goal: asset-based finance, and invoice discounting is leading the way.
While recent discussion surrounding small business lending has focused on the viability of the government’s various SME finance proposals and initiatives, new figures from the Asset-Based Finance Association (ABFA) show how asset-based finance, and in particular invoice discounting, continues to provide a lifeline to SMEs. According to ABFA data for the three-month period April to June, the number of businesses using asset-based finance rose by 4%, pushing the total above the 43,000 mark.
The most popular form of asset-based finance remains invoice discounting, with the number of companies using this SME finance facility standing at well over 18,500 for the quarter, compared with just over 17,300 for the same period in 2011. In addition, advances to business during the quarter rose by 2% to £16 billion, including a 23% growth in advances to companies with turnover of less than £500,000.
It is clear that asset-based finance, and invoice discounting in particular, is playing a key role in maintaining cash flow in the SME sector and stimulating much-needed economic growth. Furthermore, the recent figures make it equally as clear that third-party finance should play some role in the government’s SME bank.
A key criticism of previous small business funding initiatives has been that they have not given enough attention to the companies at the smaller end of the SME scale. At the same time, it is these businesses that are increasingly turning to asset-based finance. The answer to improving small business lending seems clearer than ever.
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