Director General's Blog

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Asset Finance increasingly popular with SMEs

22 January 2020

By Stephen Haddrill, Director General

 

Lending to small and medium businesses has been falling for some time, especially outside the South East. It has been suggested that this shows SMEs are cash rich but unwilling to invest. There is some truth in both statements. But there is also a ray of hope if we look beyond the use of conventional borrowing and overdraft facilities.

Asset finance (leasing and hire purchase) new business provided by FLA members grew by 6 per cent in the first eleven months of 2019 to £31.7 billion. Of this total, £18.3 billion went to SMEs for investment in machinery and equipment. Equally encouraging, new lending for plant and machinery overall grew by 8 per cent.

Why is asset finance proving more popular? To some extent it reflects business uncertainty. Wanting to grow their business but uncertain of success, business is attracted by the flexibility asset finance provides. It means you can manage your cashflow and access working capital for other investments.

That flexibility is particularly helpful as businesses move towards more sustainable assets such as electric vehicles. Our members are already funding these assets and are ready and waiting to fund a wide range of ‘green’ assets such as LED lighting and charging points for electric vehicles. As technology advances, businesses will also want to upgrade business critical assets to ensure they are delivering the best customer service they can. Asset finance gives SMEs that flexibility as they can lease an asset for a fixed term, return it and get the next generation suited to their business.

Members support SMEs in other ways too. When floods hit farmers, one member gave all their farming customers a payment holiday to help them get back on their feet.

But given all this could asset finance help business even more that it is? Almost certainly. Smaller businesses too often lack ready advice on how best to finance their needs. Too often we assume that whilst consumers need special help on money matters, business can fend for itself. On the contrary an easily accessible, fully joined up business advisory service on financial matters is sorely needed.

The challenge for some SMEs in meeting their financing needs is also not made any easier for those that are regarded in law as consumers not business. This gives them the protection of Consumer Credit legislation but also ties them up in bureaucratic and inflexible contracts which, for example, need to be rewritten to allow a short payment holiday, something which ought to be settled through an email exchange. The legislation has served the UK well over 45 years but now needs updating.

Growth, investment and productivity depend on innovation, enterprising people and finance. Asset finance is bringing these together and can do so even more effectively.

 

 

 

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