New data from the Asset Based Finance Association (ABFA) show that asset-based finance use has grown by a staggering £8 billion over the last decade. What is behind this explosion in non-bank finance?

According to the ABFA, the value of asset-based finance use by companies in the UK and Ireland totalled £22.2 billion at the end of 2016. This is compared to £14.1 billion at the beginning of 2007.  Invoice finance represents 80% of asset-based finance use. At the same time, the popularity of peer-to-peer lending and crowdfunding has also grown sharply.

At the heart of this sharp upturn is the attitude of traditional lenders. While economic conditions have improved since the credit-crunch stricken days of 2007, mainstream banks have maintained a cautious approach to small business lending. The ABFA touches on this trend when discussing its recent data, pointing towards an 8% drop in outstanding traditional business loans over the same period.

As a result of borrowing from traditional lenders becoming a challenge, small business owners have been obliged to explore all avenues to secure capital to fund investment and development. A range of factors has made this obligation more pressing than many would have liked.

As SME lending has become more difficult to access, so the problem of late payment has become more acute. The government is introducing new measures in a fresh attempt to combat the issue but late payment continues to cost small business dearly. A new report by YouGov claims that late payment is stopping these firms accessing almost £270 billion.

Other factors squeezing SME cashflow include high business rates, pension auto-enrolment obligations, cybersecurity requirements and government legislation regarding apprenticeships and the living wage.

And, of course, challenging market conditions have also driven small business owners to investigate non-bank finance. The decision to the leave the EU has only added more uncertainty. A new report from the Federation of Small Businesses highlights the potential for a small business funding black hole in post-Brexit Britain.

The growth of invoice finance and non-bank finance in general over the last 10 years is nothing short of extraordinary and the reasons behind the sector’s expansion are clear. Looking at the state of the market, continued growth should be expected, perhaps at an even faster rate.

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