"The confidence of businesses to borrow is closely tied to the economic performance of the country."
There is a 'close correlation' between the growth of invoice finance lending and rising UK GDP, according to Equiniti analysis.
UK Finance figures show that the balance of pure invoice finance has grown from £18.6 billion at the end of Q2 2017 to £18.9 billion at the end of Q3. This marks record lending levels from UK businesses and shows sustained annual growth of 14%.
The balance of invoice finance plus – which allows for advances against debt plus other assets – totalled £324 million at the end of Q3 2017, an annual rise of 33%.
Equiniti says there is a correlation between GDP and invoice finance lending as businesses gain or lose confidence from the country’s economic fluctuations.
Although GDP has remained in positive growth in each quarter since 2014, Equiniti says the quarters with relative declines have caused a knock-on effect for invoice borrowing.
This can be seen in quarters such as Q1 2016 when GDP only grew by 0.16% and the balance of invoice finance consequently decreased by over 3% and Q4 2016 when 0.57% growth in GDP corresponded with a 9% rise in invoice finance, the highest quarterly growth on record.
Aaron Hughes, Managing Director at Equiniti Riskfactor, commented: “Invoice finance continues to be the preferred method of business lending for SMEs in the United Kingdom, outstripping overdraft lending to SMEs. It is regarded as the optimal way to fund business growth because lending is directly linked to, and secured on, their customer’s sales ledger and so its continued growth over the past few years is unsurprising.
“However, additional research and analysis from Equiniti demonstrates that the confidence of businesses to borrow is closely tied to the economic performance of the country. Comparing the growth in invoice finance with that of the country’s value is a clear indicator that small to medium businesses will continue to strive for growth as long as GDP continues on an upward curve.
“It also raises the worry that, should the UK suffer as a result of Brexit or any other macroeconomic downturn, SMEs will batten down the hatches, stop borrowing and run into difficulty as a result.”