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UK asset finance market reaches record level in 2018

The UK asset finance market reached a record level during 2018 with new business totalling almost £33 billion.

The rise of 3% compared to 2017 represents the eighth consecutive year of growth for the industry, according to the Finance and Leasing Association, and comes despite the disruption of ongoing Brexit negotiations.

Asset finance new business (primarily leasing and hire purchase) grew in December by 7% compared with the same month in 2017, and by 5% during Q4 2018 as a whole.

The plant and machinery finance and commercial vehicle finance sectors reported new business up in December by 29% and 18% respectively, compared with 2017, while new finance for IT equipment was up by 16% over the same period.

Direct finance was the main form of funding approved during the year, accounting for £15.3 billion, a rise of 2% year-on-year, while sales finance was down 1% to £9.1 billion. Broker-introduced finance grew strongly, rising 12% year-on-year to £6 billion.

Lease/hire purchase remains the most popular form of funding, accounting for more than £18 billion of finance last year, a rise of 8% compared to 2017.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The temporary increase in the Annual Investment Allowance for plant and machinery from January 1, 2019 announced in the last Budget should support further growth in this sector over the next few months.”

During 2018, FLA members provided a total of £137 billion of new finance to UK businesses and households. FLA members financed around third of UK investment in machinery, equipment and purchased software in the UK in 2018.

UK asset finance market 2018

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Total FLA asset finance (£m)  2,788 +7 8,236 +5 32,571 +3
Total excluding high value (£m) 2,501 +8 7,656 +4 30,472 +3
By asset:
Plant and machinery finance (£m) 660 +29 1,786 +18 6,849 +5
Commercial vehicle finance (£m) 673 +18 2,218 +14 7,984 +7
IT equipment finance (£m) 342 +16 674 -9 2,714 +15
Business equipment finance (£m) 247 +11 735 +16 2,659 +4
Car finance (£m) 617 +3 2,040 -7 8,893 -5
Aircraft, ships and rolling stock finance (£m) 30 -17 123 +105 312 -43
By channel:
Direct finance (£m) 1,268 +13 3,833 +5 15,259 +2
Broker-introduced finance (£m) 502 +8 1,629 +12 6,090 +12
Sales finance (£m) 731 -1 2,195 -5 9,123 -1
By product:
Finance leasing (£m) 381 -4 1,134 +11 4,094 +8
Operating leasing (£m) 511 0 1,531 -6 5,981 -11
Lease/Hire purchase (£m) 1,532 +28 4,658 +13 18,158 +8
Other finance (£m) 249 -3 637 -5 3,052 -3

Source: Asset Finance International

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British Business Bank: positive growth for asset finance in 2017

Research from the British Business Bank Small Business Finance Marketsreport has shown that asset finance and leasing is competing well against other products in the small business market.

The value of SME asset finance deals (up 12%) and peer-to-peer business lending (up 51%) in 2017 both showed strong growth.

Data from the Finance and Leasing Association (FLA) suggests that new asset finance volumes with smaller businesses was over £18.6bn by the end of 2017, an increase of 12% on 2016.

Although net bank lending volumes remained positive (£0.7bn) in 2017, they were weaker than in both 2016 (£3bn) and 2015 (£2bn). Significant increases were seen in 2017 in both the value and number of SME equity deals (up 79% and 12% respectively).

The report finds a decline in smaller business confidence and low demand for external finance is becoming entrenched as their cash balances rise. Bank analysis finds that, over the last ten quarters, only 1.7% of smaller businesses sought new loans, a record low since the SME Finance Monitor began in 2011.

Less than half (43%) were confident they would get a loan if they applied, even though most new loan applications (72%) are approved. Moreover, 70% of SMEs are willing to forgo growth rather than borrow, continuing a trend identified in last year’s Small Business Finance Markets report.

Total invoice & asset-based lending advances to smaller businesses continue to rise and across all sizes of smaller businesses, the BBB found.

Data from the report has shown that the number of new loans among small firms has dropped to its lowest level since 2011.

Keith Morgan, British Business Bank chief executive, said: “A core objective of the British Business Bank is to encourage greater diversity of finance, so we welcome the growth in the uptake of equity finance and other alternatives to traditional lending.

“It can’t be overstated how important it is to build a more complete funding ladder for economically important high-growth businesses no matter where they are located. Scale-ups need more long-term patient capital throughout all stages of their development to be world-beating companies, and we look forward to using our new resources allocated at Autumn Budget to unlock more of this type of capital.”

Federation of Small Businesses (FSB) National Chairman Mike Cherry, said there were positives in the report for the wider SME lending sector, especially in London and the South East.

Cherry said: “But the fact that less than 2% of UK small firms sought new loans over the last couple of years is a real concern. We’re lagging behind the US when it comes to venture capital investment in businesses to the tune of millions. That has to change.

“Lots of small firms simply aren’t up to speed on all of their options. Increasing numbers are applying for asset-based loans and exploring the P2P route which is encouraging.

When it comes to equity finance, many small businesses are hesitant about selling a stake in their firm, even though it could be the right move for them. Small firms will often start their finance journey by speaking to the bank they’ve always dealt with, leading them down a more traditional debt route that won’t suit everyone.

“There’s also the issue of low awareness when it comes to government support. More than two-thirds of firms aren’t aware of the Enterprise Investment Scheme, for example.

“The £2.5bn handed to the BBB in the Autumn will be vital to helping tackle these issues. With Brexit edging ever closer, we’re set to lose hundreds of millions in small business support from EU funding streams. We need to see further guarantees from the Chancellor that small firms won’t lose out.”

Simon Goldie, head of asset finance at the FLA, said: “The 12% growth in asset finance new business that went to SMEs in 2017 demonstrates that leasing and hire purchase are vital sources of funding for these businesses.

“Improving the growth and productivity of smaller businesses is critical to the economy, so we welcome the BBB’s plan to stimulate demand for funding by introducing a new digital information hub in Spring 2018. The knowledge-gap in business funding has persisted for too long, and continues to hamper firms in their search for the right finance product.”

Source: Verdict