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With their vital role in the UK’s economy on shaky ground as more and more small and medium sized enterprises are turned down for much needed bank funding, services such as asset based financing are coming into their own.
According to the Asset Based Finance Association (ABFA), firms using these financial services in the UK and Ireland rose by 4% in the second half of 2012 with the most recent figures showing that 43,000 businesses turned to ‘asset based finance’ in Q2 this year while the total amount lent to companies in the same period of 2011 was up 2% in 2012, at £16 billion.
SME’s confidence has taken a knock after 42% of funding requests were disallowed up to and including Q3 in 2012, and it seems that despite funding available from invoice factoring and discounting, companies are still reluctant to take full advantage thus far. But with over 1000 new small businesses using the service as a way to inject working capital into the company when compared to the same period in 2011, it looks like it is slowly becoming seen as an economically significant funding option.
The annual growth rate of the invoice finance market since 2009 has been over 10 percent year on year, demonstrating that it has stepped up to fill the gap left by the decrease in traditional bank funding. Phillip Kearle, Chief Executive Officer of Demica, who organised the research on invoice financing and its uses, says: “Our report has demonstrated [invoice factoring’s] economic significance in Europe [and that it is] playing a vital role in funding the economic recovery…in a world of suppressed liquidity, [because] corporate health hinges on the availability of working capital”.
It seems that choosing to use a lesser known funding option is not the only issue for the SME’s. Their reluctance to increase their debt still further is the other problem According to statistics taken from the 2012 Top 100 small and medium businesses in Yorkshire, two more firms have debts between £0 and £10m. Although overall the the businesses in the list have stayed fairly steady with 32 of the 49 firms in a position of net debt having a gearing of under 100% – the same figure from 2011. The main change is that 6% more firms with a requirement for working capital are using invoice financing since 2011 – in fact the top SME’s in the area are choosing not to get into more debt and are instead choosing to use their current assets to gain immediate funding.
Overall, with net bank lending to SMEs falling month on month under the current government schemes it is time for companies to explore these previously lesser known funding options to allow them to access products and services they need to increase their funding and working capital whilst decreasing their dependence on the banks.
"Target Business Assist have provided our business with a new invoice factoring system that has dramatically improved our cash-flow position and flexibility with our clients..."
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