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Removing the myths about asset finance

Misconceptions about the asset finance market mean businesses do not realise how cost effective and efficient it can be.


Although the asset based finance market is now a mature one, it is still rife with misunderstanding. “A lot of misconceptions relate to the historic use of the product,” says John Bevan, Head of trade and working capital in the UK and Ireland at Barclays and a past chairman of the Asset Based Finance Association (AB- FA). “Total funding through asset based lending is now just under £16 billion with over 41,000 companies using the facilities.”

John Bevan is keen to dispel myths, starting with the fear that the asset based lender will have access to their invoice book and will allow them to assert too much control. “Clients can outsource their sales ledger management and many clients find this a significant benefit,” he says. “However, the business can also choose to maintain full control over their sales ledger by using invoice discounting – and merely releasing the working capital tied up in their debtor book.”

Not just for the failing companies

Another misconception is that this type of lending is expensive: in fact interest rates charged are competitive with more traditional types of funding. Then there is the claim that only failing companies use it, patently untrue given that ABFA is gaining membership and the volume of client sales, which are managed by members of ABFA, grew by 9 per cent in the last 12 months. Increasingly, larger businesses regularly turn to this type of finance and growth of this type of funding far outperforms other forms of debt.

“One of the essential points about it is the transparency,” says John Bevan. And he points out that it can be extremely beneficial for a company to have a lender who has a close insight into the day to day running of the business. The lender can often spot potential issues with a client’s working capital and provide assistance before these arise.

Business is finally booming again

It’s official: Britain’s out of recession, with the economy growing by 1 per cent in the three months from July to September 2012 and as the economy recovers, the asset finance industry is equally able to help companies benefit as their lending facilities grow with the companies.

What businesses need

“Businesses tend to fail on the way out of a recession, not the way in,” says Matthew Haw, partner at Baker Tilly. “They need working capital, which traditional lenders may be reluctant to supply, and invoice discounting provides that.” Of course, asset based lenders can also lend against assets such as stock figures and plant and machinery, and as a business grows, it will have more stock to lend against.

It’s official: Britain’s out of recession, with the economy growing by 1 per cent in the three months from July to September 2012 and as the economy recovers, the asset finance industry is equally able to help companies benefit as their lending facilities grow with the companies.

“If you go from selling £750,000 a month to selling £1 million a month, your purchasing needs will grow, but you will still not have got paid,” explains Haw. “But this way your working capital can grow as quickly as your sales.”

And as companies grow, of course, so the economy continues to prosper, thus creating a virtuous circle, whereby the economy continues to improve.

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