Businesses increasingly turning to invoice finance, reports Bank of England

Asset-based finance is fast becoming a favourite of SMEs in search of credit, a Bank of England report has found, as businesses increasingly turn their backs on inflexible bank overdrafts.

Alternatives for financing working capital that are available in place of overdrafts, such as factoring and invoice discounting services, are being seen as particularly useful to small firms, who fear banks will cut overdrafts or increase rates.

"Small firms generally perceived credit conditions to be very tight. And many small firms were reluctant to approach banks in case it led to an increase in the cost of existing borrowings, or reductions in overdraft limits", the report said.

"There had been an increase in the use of asset-based finance for investment (in June 2011)," it concluded.

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