Adapting to 2024: 3 Key Trends in Factoring and Asset-Based Lending

As we head into the last part of 2024, the factoring and asset-based lending (ABL) industry is undergoing a transformation shaped by rising interest rates, renewed competition from banks, and strategic changes in leadership. These shifts present challenges and opportunities for those in the specialty finance space. We thought we’d take a moment to capture some of the top trends we are seeing today.

Rising Interest Rates and Their Impact on Cost of Funds.

‍Since March 2022, the Federal Reserve’s ongoing rate hikes have made borrowing more expensive not only for small and mid-sized enterprises (SMEs) but also for lenders. This has tightened margins and led to a serious increase in private credit capital entering the market, with new players launching in the factoring and ABL space.

To stay competitive, commercial lenders are differentiating, diversifying, and seeking innovative deal structures and partnerships. Strong client relationships and heightened credit risk assessment are paramount in this ever-changing environment. Additionally, more than ever, especially with slimming margins, fewer team members, and higher advance rates and deal structures, factors and lenders need to be strategic about pricing and servicing to manage these increased costs while still meeting client needs.

Banks Re-Entering the Market.

‍Banks appear to be cautiously re-entering the market, driven by the need to diversify portfolios and regain deposits. This re-entry intensifies competition, particularly for lower-risk deals. However, it also creates opportunities for bank-non-bank partnerships, potentially benefiting both parties and borrowers through access to lower cost of funds and expanded product offerings.

Succession Planning and M&A Activity.

‍Increased portfolio sale activity, driven by factors like aging leadership and evolving market challenges, is creating opportunities for growth-oriented firms. Thorough due diligence is critical for both buyers and sellers in these transactions.

In 2024 and going into 2025, success in the factoring and ABL industry demands agility, strategic partnerships, and a proactive approach to both risk management and growth. These trends highlight the importance of forward-thinking leadership and the ability to adapt to a rapidly changing environment.

At Haversine, we’re committed to helping lenders handle these evolving trends and secure the financing needed to drive their financial platforms to success. Contact us today to discuss your specific needs and explore customized solutions that fit your specific needs.