First posted 16th September 2013
Asset finance has been notoriously underutilised in the UK, but new figures from the FLA suggest that the sector can be optimistic. With the number of SMEs using asset finance at its highest level to date, the UK is set to close the gap on continental manufacturing and industry by finally acquiring those much-needed equipment upgrades.
Asset finance is an underutilised and generally misunderstood financial product. Poor awareness of asset finance has apparently stifled the UK’s manufacturing capability, according to Lombard, with a quarter of all companies they surveyed operating on equipment that needs replacing. International competitors, more informed on their access to leasing and, subsequently, with better equipment, are outstripping UK companies, potentially costing small and medium enterprises (SMEs) billions.
However, there are signs that this trend may be coming to an end, says the Finance & Leasing Association (FLA). Finance is becoming more popular when acquiring new assets – new business deals increased by 6% in July 2013 when compared to 2012. Specific sectors had an even better year; equipment finance grew by 11% in the same period, and commercial vehicle finance grew by a remarkable 16%.
It’s likely that the large number of SMEs held back by their reluctance to use asset finance are getting better informed, with a concerted effort by many companies, Clear Asset Finance included, to improve communication and education on the topic. Clear, for instance, offer sales training to their supply partners so that their salespeople are better prepared to offer financial products to their customers.
Leasing a piece of equipment from a funder comes with several benefits; working capital isn’t tied up in costly equipment, you have access to a wider range of equipment than simply buying outright and it’s less risky than a bank loan secured against property. Interest rates are also usually frozen over the rental period.
Not all sectors of asset finance saw such a bumper year. IT equipment finance fell by 8%, and aircraft and ship finance fell by 57%. All-in-all, however, £76.6 billion of finance was provided by FLA members in 2012, which is a staggering amount. Clear Asset Finance did its fair share, naturally.
Hopefully this increase in business for asset finance companies will continue despite the major regulatory changes scheduled to affect the market. These new regulations will be discussed on 1th September 2013 at the FLA Forum on Asset Finance Regulation & Compliance in London, and will spark important discussion on how the industry should develop.
Currently, according to numbers released by the FLA, 9% of SMEs use asset finance to lease one or more assets, which is an all-time high. Considering that leaves a market of 91% of SMEs, the prospects of the asset finance sector are looking good.