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The Growth of Alternative Lending: How Invoice Financing is continuing to Empower SMEs in the UK

In the current economic climate, it is tempting to think that the UK remains mired in the same cycle of stagnant wages and rising inflation that emerged in the wake of the Great Recession. Of course, the spectre of Brexit has hardly helped the prevailing sentiment among British households and businesses, but many remain convinced that our economy is suffering as a result of the sustained fall-out from the recent global recession.

A great deal has changed since the recession, however, not least in terms of the help and guidance available to businesses (particularly smaller ventures) in the UK. One of the biggest areas of evolution has been the emergence of alternative lending platforms, which have provided a more flexible alternative to bank loans and made funding more accessible for SMEs.

A Look at Invoice Financing: The Alternative Lending Vehicle of Choice in 2016?

While concepts such as peer-to-peer lending and crowd funding have emerged as mainstream financing options during the last five years, however, another option has made a more recent impact on the commercial landscape. This is invoice financing, which according to the Asset Based Finance Association (ABFA) delivered £20 billion in secured funding last year (the first time it has achieved this notable milestone). This figure also represented a 5% increase on the previous years’ figures, which came in at a healthy £19.3 billion.

If you look back at the five years since the great recession ended, however, the growth of invoice financing has been even more pronounced. In fact, the cumulative sum borrowed through this lending model has soared by a staggering 27% since 2011, proving that the market is growing at a faster rate than any of the available alternatives. So not only has invoice financing assumed its place in the mainstream, but it has arguably emerged as the alternative lending vehicle of choice in the modern age.

Why has the Demand for Invoice Financing Grown So Significantly?

There are numerous reasons why invoice financing has become so popular, but the primary factor at play is the unique value proposition that it offers. While alternative lending models were initially developed for SMEs who were unable to secure credit through traditional bank loans, for example, invoice financing is suitable for businesses of all sizes and any venture that wishes to maintain a viable level of cash-flow. This is reflected by further figures in the ABFA’s recent report, with a record-high 18% of the total borrowed through invoice financing secured by the UK’s largest businesses.

In addition to this, invoice financing enables businesses to reduce their reliance on traditional banks loans without forcing them to take on investors and give away valuable equity to outsiders. In short, borrowers can apply for risk free funding using official invoices and purchase orders as collateral, while also retaining control of your business assets. It is also relatively easy to review invoice finance rates, using an invoice finance calculator to determine repayments and any interest that you are likely to accumulate.

The Last Word

Altogether, the accessibility and flexibility offered by invoice financing (along with its unique value proposition) makes it a universally popular lending vehicle in a challenging economic climate. This trend is likely to continue for the foreseeable future too, particularly as businesses look to eschew bank loans and minimise the amount of debt that exists within their infrastructure.

With this in mind, invoicing financing appears to be the ideal solution for small and medium-sized businesses that have just started out or continue to struggle with minimal cash-flow during invoicing periods at the end of each month.

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