Banks are starting to look upon invoice finance and asset based finance as a good way to lend, according to new research. With the ongoing hardship in the economy, banks are putting more emphasis on risk analysis, and invoice finance is holding up well against this new scrutiny.
In the United States, banks are very focused on the risk attached to their activity. Over the pond, the first type of lending that businesses are offered will often be asset based finance – it’s low risk, secured debt and something that banks are keen to offer.
However, in the UK, invoice factoring is less well known. Only about 1% of the 4.5 million businesses in the UK use this method of finance, despite the benefits for banks, factoring lenders and the businesses themselves. However, Ian Larkin, managing director of Lloyds TSB commercial finance believes that about 10-15% of businesses could use it.
The banks are therefore offering invoice finance as an option for more companies, indeed this method of asset based finance could help many to get access to the funding they need. Loans and overdrafts often don’t allow for the flexibility that businesses need and are also hard to obtain for many businesses. Factoring and invoice discounting solutions are on offer from smaller providers with more scope to be creative and versatile with their finance.
As well as offering banks a low-risk lending option, there’s also the advantage for companies who are looking to avoid risking new debt in tough economic times. Invoice finance releases money tied up in unpaid invoices, meaning that no new debt is taken on.
Invoice finance has already been backed by the government as a way for UK business to grow – and the signs are looking good for it to play a big part in the country’s economic recovery.