SMEs ditching overdrafts for asset based lending

ASSET-BASED finance is increasingly taking market share from bank overdrafts as a key source of funding for small- and medium-sized enterprises (SMEs), research claims.

Analysis by trade body the Asset Based Finance Association (ABFA) found during 2016 an average £9.5bn was lent to SMEs using either invoice finance or asset-based lending products.

This was up three per cent from £9.2bn in 2015, while at the same time the amount of SMEs’ outstanding bank overdrafts decreased by two per cent to an average £12.4bn last year, Bank of England figures show.

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Jeff Longhurst, chief executive of the ABFA, said asset-based finance provides longer-term options for SMEs as an overdraft can be withdrawn or reduced at short notice.

“More and more SMEs are replacing traditional overdrafts with asset based finance – it is now a major part of the small business lending space,” he said.

“SMEs are realising they can leverage the value of assets such as outstanding invoices for the direct benefit of their businesses – and there are a number of flexible options they can choose from.

“Unlocking this capital gives SMEs the means to purchase new equipment, invest in new systems or expand premises and increase headcount in order to ramp up capacity and capitalise on new growth opportunities.

“While bank overdrafts can be withdrawn at short notice if companies are deemed no longer to need them, for instance during peaks in business, asset based finance is a longer-term option, making it easier for companies to plan for the future.”

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