Some Factoring Companies have moved their lending away from margins above Bank of England Base Rate to margins above LIBOR (London Inter Bank Offered Rate). We at the Enable Invoice Finance team have a look why.
Banks’ access to funds has always been through the wholesale money markets. Such funding is charged at a wholesale rate known as LIBOR (London Inter Bank Offered Rate). Funds are then lent on to customers at a retail rate – over Bank of England base rate. Historically LIBOR has predicted the direction of base rate and thus the status-quo has been achieved.
With the onset of the financial downturn in 2008 many banks, including some of the largest in the UK, lost confidence in the value of the security being offered to them by their peers and as a result became very reluctant to lend on the wholesale markets. This drove up the cost of wholesale funds (LIBOR) at the same time as the base rate started to fall, driven by the Bank of England’s desire to control inflation. For the first time ever a gap opened up between the two market rates.
Several Banks and Invoice Factoring Companies now base all advances on LIBOR. The impact of this adjustment on clients initially will have been a big increase as there was a large disparity between base rate and LIBOR. However, there seems now to be closer similarity between the two rates as money markets begin to stabilise. Some may still notice a slight monthly fluctuation in the rate being charged.
Enable Finance are committed to supporting SME businesses during these difficult economic times – we have an excellent track record of and believe we are very well placed to continue to provide funding and expertise for clients. For further information on how Invoice Factoring could help your Company please contact Phillip Evans on mobile: 07970 500 425