One of the fastest growing of these new avenues is asset-based finance. Here a company uses its balance sheet assets, such as accounts receivable or its inventory to raise funds, with the lender using those assets as security. 

Within asset-based finance is invoice financing. This is where a company will sell its unpaid invoices to a third party. This can involve discounting debt factoring, which is where a company uses an invoice financier to collect money owed by the company’s customers. With invoice discounting the invoice financier lends money to a company against that company’s unpaid invoices. This is usually an agreed percentage of the total value of those invoices. 

In a recent BBC interview Lord Digby Jones, former director general of the CBI backed this kind of financing. “I’m very, very keen on getting more companies to stop looking to their bank for an overdraft,” he said. “[Use] your invoices and using your debtors. Go to a company that will lend you money on your invoices and manage your invoices and…then you can look at a different way of financing.”

Read more about SMEs shunning banks:

• UK banks are the biggest barrier to SME growth
• Banks shunned as SMEs investors turn to peer-to-peer lending
• Businesses increasingly relying on friends and family

“This isn’t a niche industry any more,” explained David Parsons, regional director South and Midlands at Secure Trust Bank Commercial Finance. “[We] recognised a significant opportunity within the marketplace to provide SMEs with a full range of asset-based lending products, with traditional bank finance still difficult for many small businesses to obtain.” He pointed to recent figures issued by the Asset Based Finance Association (ABFA), which revealed that businesses received a record £18.9bn of funding from asset-based finance in the three months to June 30 2014. “As a trusted challenger bank, Secure Trust has been able to bring its highly experienced team into this growing market.”

Asset-based finance is particularly well suited to growing businesses where traditional forms of lending don’t keep up, said Parsons. “It can be applied to SMEs across a diverse range of sectors where value can be added to a business by releasing cash for their assets. For growing businesses especially, if you can increase working capital, you’re able to conduct higher levels of turnover without continually renegotiating your banking facilities, which generates higher levels of profit without any loss of control.”

Read more about asset-based finance:

• 10 alternatives to a bank loan for growing businesses
• Asset Financing: A real opportunity for Funding for Lending?

He added that in addition to this, service fees can often include protection against bad debt and, in certain cases can take over the credit control function, which allows companies to focus on the day to day running of their business. “Asset-based finance can also be used to support M&A activity by using assets to support buyouts and acquisitions. Likewise, it is useful for startup companies, where there is no historical balance sheet, and a strong reluctance from banks to lend.”

Of course, like any form of borrowing, there are risks attached to asset and invoice based lending. You will still have to pay interest and so negotiating the best rate is important. Also, as with borrowing from the bank your lender may make demands on you or ask you to fulfil certain criteria. But provided small and medium-sized enterprises are aware of the all the risks and seek appropriate advice this new, fast-growing form of financing offers considerable opportunities in a world where banks are still unwilling to lend but many markets are buzzing.

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