Asset based finance industry rides the financial storm
Statistics from the Asset Based Finance Association (ABFA) show that the industry has advanced a record breaking £16.2 billion in quarter one of 2008. While advances continue to grow year on year and client numbers remain steady, other figures reflect the more 'protective' stance firms are taking during today's turbulent economy.
The first quarter report reveals that the industry is worth more than £48 billion already this year, and where other finance industries are facing problems in the wake of the credit crunch, the asset based finance industry is holding its own. Though client numbers have dropped 4.9 percent from last quarter, advances continue to increase showing that companies using a form of asset based finance continue to grow.
Signs of the credit crunch are evident within the statistics with a 15 percent increase in the values of credit protection payments to clients. UK businesses that have been prudent and shielded themselves from others bad debt or misfortunes are now reaping the benefits.
A sign of tough internal UK trading can be seen in terms of the finance products. Export invoice discounting has experienced a 25 percent growth in client sales volumes on this time last year, followed by export factoring with 14 percent. Import factoring has seen the biggest increase in client numbers in the first quarter, with a six percent increase, while domestic invoice discounting reports a five percent increase.
And in times of tight liquidity, more and more firms are looking inwards and investigating other forms of releasing finance. While advances against debt still remain the most popular form of raising finance, and reports growth year on year (15 percent increase), advances against assets have seen a 27 percent increase. Security values on balances advanced against stock has jumped 96 percent from Q1 2007 to stand at £739 million with security values in property increasing by 27 percent equating to £595 million.
The trend for asset based finance to attract larger companies is continuing. The number of business with a turnover of £10 million plus using the finance options has increased by eight percent from Q1 2007. While businesses with turnovers of £5 million and under still account for 86 percent of client numbers, over 56 percent of the value of the industry's advances are to £10 million plus businesses, with funds used for MBOs, acquisition and growth.
Following on from the increase in client numbers of larger companies is the number of syndicated deals led by ABFA members. While client numbers have remained steady (0.9 percent increase), ABFA members have led on an increased 70 percent of deals, worth over 64 percent more than this time last year to a value of over £1.2 billion.
In terms of client sector numbers, manufacturing (14,783 clients) has taken over from last quarter's leader, the service industry (14,510 clients). However, both these sectors have reported a fall in client numbers, while the distribution, transport, construction and retail sectors have reported growth since Q1 2007.
Kate Sharp, CEO of ABFA said; "Even in these worrying financial times, the asset based finance industry continues to go from strength to strength. The quarter one statistics give us a good snap shot of the economy; increased credit protection payments are indicative of higher levels of corporate failure with the increase of export and import finance signalling difficult UK trading. In times of toughened borrowing and trading we expect to see more companies turn to using their business assets to raise or release finance. It will be interesting to watch how the rest of the year unfolds."