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Asset Based Lending

SMEs miss out on asset based lending

By CreditMan Thursday, February 16, 2017

Small and medium-sized enterprises (SMEs) are missing out on an opportunity to fund their business more effectively because they lack information about the benefits of asset based lending, a new study from Close Brothers reveals. Its research suggests many SMEs are sticking with inflexible and often unobtainable forms of credit because they aren’t aware of the potential advantages of alternative funding options.

Close Brothers’ research found that almost three-quarters (72%) of SMEs did not know it was possible to secure finance on the basis of their turnover, rather than their credit rating. And while almost half the SMEs in the study (44%) said they would consider asset based lending over a loan or an overdraft, this willingness is not translating into action; just 16% of SMEs said it was their current ideal form of business finance. By contrast, two-thirds (66%) of SMEs said a bank loan or overdraft was their preferred solution.

The research findings are bad news for SMEs, which often struggle to secure the finance they need from traditional sources, particularly where they’re keen to invest for further growth. Lack of access to good-quality funding may prevent such businesses achieving their potential.

David Thomson of Close Brothers Invoice Finance said it was crucial to ensure SMEs had a good understanding of a wide range of possible sources of funding. “The findings of our research are disappointing because for many SMEs, asset based lending offers key benefits over other types of finance, including greater flexibility, fewer covenants, scalability and ease of access,” David said. “If SMEs were better informed about how asset based lending works, many more would put it to good use in their businesses.”

Close Brothers’ research also suggests that asset-backed lending could be the key to unlocking liquidity for very significant numbers of SMEs. More than two-thirds of SMEs (69%) with an annual turnover of £10m or more have cash tied up in business assets such as plant, machinery, property and stock, the study shows.

“Asset based lending is a source of real untapped potential for SMEs,” Close Brothers’ David Thomson added. “We know that a lack of access to finance is a real barrier to growth for many businesses with huge drive and ambition, but the secret to securing this funding is often to be found in the assets the business has.”