Bank Lending to Leasing Companies Recovers and Becomes ‘Funding Source of Choice’
Bank lending to leasing companies has jumped 17% in the last 18 months (since May 2011), recovering from a slump that began at the start of the recession in 2009, says Syscap, a leading independent finance provider.
Leasing allows a company to upgrade their equipment when it becomes obsolete and most leasing arrangements, unlike loans, do not have a negative impact on a balance sheet. Outstanding bank loans to leasing companies stood at £27.2 billion in August 2012, up from a 20-year low of £23.2billion in May 2011.
During the same period, bank lending to all businesses fell 5%, from £438.7billion in May 2011 to £417.1billion at the end of August 2012.
However Syscap points out that lending to leasing companies is still far from the level it was at prior to collapse of Lehman Brothers and the on-set of the financial crisis (£35.2billion in September 2008)
Syscap explains that demand for leasing is on the rise, with businesses increasingly turning to leasing rather than using traditional bank loans or overdraft facilities.
Many businesses have expressed their concern that the traditional credit facilities, such as overdrafts, can be withdrawn at almost no notice.
Even long-term loans can be withdrawn from businesses if the company’s turnover or profitability falls below a level set by the bank. Lease finance, however, stays in place just as long as the business is able to make its payments.
Says Philip White, CEO of Syscap:
“Leasing has become the funding source of choice for many solid small businesses, offering a more secure way of funding investment or expansion than traditional bank loans or overdrafts.”
“It is a vital source of funding for businesses that want to invest in new assets such as machinery and IT.”
“It’s great to see that banks are responding to this demand by providing more finance to businesses through the leasing sector. It is the one of the few areas of the finance industry that is increasing funding to businesses.”
Syscap explains that leasing can help small businesses both by funding crucial capital investment in their businesses, boosting competitiveness and playing a part in helping create a wider economic recovery.
Explains Philip White: “Banks are now more enthusiastic about lending to leasing companies, thanks in large part to the investment that the industry has made in improving credit checking processes.”
“Leasing companies are also getting better at assessing the value of collateral, taking greater care in the valuation process which leads to higher recoveries if the borrower gets into trouble.”
Syscap explains that leasing is now a crucial source of funding for SMEs as it helps them to spread the cost of expensive assets and maintain a healthy cash flow. Advantages include:
Leasing does not impact on a business’ other credit lines, giving the company concerned more scope to borrow money when they need it in the future.