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More Understanding of Invoice Finance is Needed

Do you know your stuff when it comes to business finance? It pays to have all the information as a new survey by Lloyds TSB Commercial Finance has shown. This survey of 2,000 SMEs has demonstrated that a lack of understanding of alternative finance can hamper things when it comes to UK small and medium sized business growth.

Lloyds questioned companies about their understanding and awareness of a range of sources of finance including the traditional options of overdrafts and loans as well as government backed schemes such as Funding for Lending. Asset based finance and invoice finance were also part of the agenda, representing less traditional and less well known means of financing business growth.

It was the awareness of these alternative finance options that was shown to be a hole in many businesses’ knowledge. Though the latest Q3 figures from the Asset Based Finance Association (ABFA) show a 4% increase in the total number of businesses using asset based based year on year, making nearly 44,000 companies in all, the level of knowledge one the whole from businesses did not reflect this.

Lloyds’ research showed that there was still a lack of understanding of asset based finance when compared to more traditional forms of finance. Almost all SMEs were familiar with overdrafts at 98%, whereas only just over half (52%) were aware of asset based lending. This is perhaps to be expected, but the size of the gap shows that alternative lending methods need to be better known in order to take some of the strain induced by a lack of bank lending.

Invoice finance is one of the most popular forms of asset based lending, but real understanding of its benefits is lacking in many SMEs. While 70% were aware of invoice finance, only just over half had a good understanding of the process, while only 15% had ever used it. This shows that in order for invoice finance to make more of a difference to the UK small business community, more needs to be done to get the word out on all the benefits this flexible form of finance has.

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