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Opinion > UTB

SMEs benefit from fast, flexible options

Keith Sangwin, asset finance sales manager at United Trust Bank | 14:30 Tuesday 25th April 2017

Latest statistics from the Finance and Leasing Association (FLA) indicate steady growth for the asset finance sector.

New business, primarily leasing and hire purchase transactions, was up 5% for the year to December 2016 and FLA members provided around £30 billion of finance to businesses and the public sector over the same period. Around £5.1 billion of that business was introduced by brokers. Activity in the Asset Finance industry reflects our own experience at United Trust Bank where 2016 saw our sixth consecutive year of double digit growth. A record we intend to maintain in 2017.

It's no coincidence that the resurgence of asset finance appears to have started in the depths of the credit crunch, when many SMEs found their usual business bankers less than accommodating. Those least affected may have found applications for credit declined whilst those who suffered most had overdrafts and other lines of credit withdrawn at extremely short notice. Companies which up until that point had been extremely good customers, found themselves at the thin end of their bank's risk profile wedge.

Things have improved somewhat since then and the High Street banks appear to be loosening their purse strings, encouraged by initiatives such as the Funding for Lending Scheme. However, it's clear when talking to brokers and businesses that there's a considerable amount of cherry picking going on.

Legendary comedian Bob Hope is credited with the famous quote; 'a bank is a place that will lend you money if you can prove you don't need it'. Thankfully, for many borrowers there are a number of banks and other lenders, though not found on the High Street, which are more amenable when businesses do need to borrow. Asset finance lenders have thrown many businesses a funding lifeline when their own bank has sailed away, leaving them treading water, or worse, drowning.

Not all businesses consider asset finance only because they've been turned down by their bank. Many prefer to use asset finance because they do not wish to tie up existing bank facilities and asset finance can be substantially quicker than arranging a loan or extending their overdraft. Newly formed companies can find problems borrowing money because larger lenders often have rigid lending criteria. If a business can't produce two or three years of accounts they probably won't get over the first hurdle, regardless of the background. Flexible asset funders can take a more pragmatic approach, especially if they can be 'asset secure', meaning that the loan amount can be repaid from the sale of the asset if the company should get into difficulty with the repayments.

Manufacturing and engineering companies can have a significant amount of capital tied up in expensive equipment and machinery, even if there are still some loans or finance agreements outstanding. These assets can be used to release substantial amounts of money as long as the funder has the skills, experience and desire to do so. In one example UTB was asked to fund the £1m acquisition and fitting out of an additional factory by refinancing some of a company's CNC machines. Although the group structure and shareholding wasn't straightforward, and several lenders needing settling off as part of the overall deal, we were able to pay out the funds in line with the company's required timescale.

Businesses can now fund a broad range of asset purchases from specialist film making lenses to mobile cranes and injection moulding machinery. And the capital released from refinancing assets such as commercial vehicles and construction plant can be used to fund everything from bulk orders of fertiliser to biomass boilers.

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