Every business needs a form of finance, whether it’s to cover overheads, increase cash flow or to invest in important equipment for the business. Where does your business source its finance?
Throughout 2015 we have seen a shift in SME behaviour, more and more companies are choosing alternative routes to finance and are moving away from the traditional methods such as bank loans and extended overdrafts. The most popular alternative routes we are seeing are crowdsourcing finance, peer-to-peer lending cash flow/invoice finance and asset finance. In this blog we are going to focus mainly on the asset finance side of things.
Did you know that 52% of SMEs have previously used leasing to invest in vital equipment? And that 33% would consider using asset finance in the future if they had more information on how it could benefit their businesses? (Survey conducted by Lombard, “Attitudes to Business Investment”).
As a finance provider, we have noticed a large increase in UK companies choosing to lease equipment rather than using cash from a bank loan or extended overdraft. For example, in 2015 alone we have financed over three times the amount of EPoS systems compared to the first 6 months of 2014, almost £100K more catering equipment and £500K more security equipment. And we are not the only ones noticing an upwards trend, the CEO of Close Brother Asset Finance released the following statement in August: “We found that more firms are opting to use asset finance than either bank loans or overdrafts, signalling a shift in SME attitudes towards finance which appears to be moving away from traditional reliance on bank lending.” (Leasing Life)
All of these facts and figures are all well and good but the obvious question on many peoples’ lips is: why is this shift occurring? Below are just a few factors in which we believe have contributed to the rise in asset finance:
- The UK Economic Recovery
The 2008/9 recession negatively impacted SMEs, particularly when finance was concerned. Throughout the recession many SMEs and new-start-ups struggled to obtain the finance they needed to invest in equipment in order to grow. As a result confidence in this alternative route declined and in many cases leasing was not considered as an investment option anymore. However, the economy is on the road to recovery and with this we have seen an increase in confidence, from companies in need of equipment, suppliers and funders, and therefore more companies are choosing to lease and credit approval rates have increased greatly.
- A Better Understanding
As a result of the misconduct of some finance companies, mainly in the consumer markets, the FCA refreshed and introduced certain criteria to ensure customers are treated fairly at all times. This has resulted in an increased awareness and understanding of certain elements of finance routes which has led to companies feeling more comfortable choosing a finance option, as they understand how it all works. Furthermore, finance providers have made literature, resources and tools available to help their customers understand the service they provide in more depth.
- Increased Government Support
In June 2014 the government acknowledged asset finance as the “perfect solution” for securing equipment companies might not otherwise be able to afford (Leasing Life). The UK government has increased support for SMEs over the last couple of years and therefore have recognised leasing as a cost-effective and smart investment solution. To support SMEs in sourcing finance from alternative routes further, the government is introducing the Small Business, Enterprise & Employment Act in March 2016. The act addresses key elements such as access to finance, registration processes and corporate transparency.
With all of these factors working together it is no wonder the asset finance industry has seen growth for twenty-two consecutive months (FLA). It is predicted that this growth and shift will continue into the future, institutional investors predict alternative finance marker will grow by 23% over the next two years (Leasing Life).
So next time your business is need of equipment why not give an alternative investment route a go?