Asset finance is steadily replacing the role of bank overdrafts for small businesses and new data from Siemens Financial Services and Aldermore Futures Attitudes shows exactly why.

Asset finance (and alternative finance in general) is gaining market at the expense of traditional lending services – this isn’t much of a revelation but new figures from the Asset Based Finance Association (ABFA) underline how the SME finance landscape is shifting. According to the ABFA, an average of £9.5 billion was lent to SMEs in asset-based finance in 2016, an increase of 3% over the £9.2 billion recorded in 2015. At the same time, the value of outstanding bank overdrafts fell by 2% to an average of £12.4 billion in 2016 (£12.6 billion in 2015).

What is fuelling this shift? In part, it is the cautiousness of traditional lenders. Stung by the 2008 crisis, these lenders have made accessing funding a lot more challenging for small business owners. Brexit and the uncertainty it has bred has checked any change in thinking. Alternative finance has filled the gap, with flexible, accessible and affordable services such as asset finance, peer-to-peer lending and crowdfunding allowing companies to maintain cashflow at critical times. According to ABFA, invoice finance is the leading form of asset-based finance, comprising 80% of lending.

The recent Aldermore Futures Attitudes study highlighted how costly the failure to secure finance is for small businesses, with annual lost income on average running into five figures.

Alternative finance is also helping small business owners manage the problem of late payment, which has a major impact on working capital and cashflow. The severity of the problem has been illustrated recently for the umpteenth time – according to a new report from Siemens Financial Services, late payment cost small businesses £250 billion in liquid cashflow. In addition, on average a company spends 130 hours a year chasing overdue payments, which equates to an annual bill of almost £11 billion.

As the health of the economy looks set to remain fragile and meaningful growth checked by the Brexit process and the ongoing failure to successfully address the problem of late payment, it seems certain that asset finance and other alternative finances will continue to challenge the position of bank overdrafts and erode its market share.

To find out more about A&T Business Associates services, contact us on 01903 602211 or info@atbusinessassociates.co.uk.