The sector is no longer playing second fiddle to high street banks
The comeback of asset finance is complete. Data from the Finance & Leasing Association (FLA) reveals its members provided Â£27.1 billion of asset finance to businesses over the year to the end of June. That exceeded the industryâ€™s peak before the financial crisis of Â£26.7 billion. Lending in June alone was up 22 per cent on 2014.
Simon Goldie, head of asset finance at the FLA, says the explanation for the sectorâ€™s growth is twofold. With the economy in recovery mode, both small and large businesses have been more inclined to take on new funding. In addition, asset finance providers have worked hard to explain why their deals are potentially so attractive.
There was a time when asset finance was seen as a last resort â€” perceived as useful only for businesses turned away by the high street banks. No longer, argues Goldie. â€œAsset finance now accounts for 27 per cent of businessesâ€™ fixed capital investment,â€ he says. â€œMany more businesses see its benefits.â€
Among FLA members, asset finance provision is broadly equally split between leasing â€” where the provider buys the equipment and the customer then leases it â€” and hire purchase, where the lender provides the capital for the customer to make the purchase. Either way, there are clear potential advantages over bank finance.
â€œAbove all, asset finance is incredibly flexible. You name the asset and you can find finance for it,â€ Goldie says. He also points out that with an underlying asset providing security, providers feel comfortable extending larger sums, often at lower prices, and can arrange finance more quickly.
â€œThe other important point is that we want to work in partnership with businesses,â€ Goldie says. â€œOur members have expertise in the assets these businesses are considering acquiring and they spend time talking to companies about how they plan to use that machinery â€” and how they might achieve the growth they are targeting.â€
This is a point echoed by Jeff Longhurst, the chief executive of the Asset Based Finance Association, whose members provide finance that businesses can secure against existing assets and then use as they see fit.
â€œThese businesses need help achieving their ambitions,â€ he says. â€œTheyâ€™re using our finance for the purchase of other businesses, or for investment that will help them to grow in another way.â€
Derek Soper, chairman of the Leasing Foundation, believes industry statistics underplay the extent to which businesses now depend on asset finance for growth.
The foundation is researching whether the sector needs to agree new terminology in a marketplace where providers use a multitude of terms to describe asset finance, not all of which are captured by the data. â€œWe think the DNA of leasing is now so wide that it is being under-reported by 30 to 50 per cent,â€ he says.