Is the asset finance industry
providing enough credit to UK SMEs? Antonio Fabrizio
reports
Go deeper with GlobalData
Barclays’ decision to stop
providing asset finance for companies with turnover of less than
£5m (€6m) a year has sparked a debate on whether asset finance can
be replaced by plain loans.
Other providers argued that they
are not easily interchangeable.
Kennet Equipment Leasing’s director
Tony Devenney said: “I am extremely surprised by Barclays’ decision
to pull out of the leasing for SMEs and also by the timing of this
decision, particularly after agreeing to increase their lending
within this sector.”
In February, Barclays, HSBC, Lloyds
Banking Group, RBS and Santander pledged to increase overall
lending capacity to UK businesses. The five banks agreed to lend
£76bn to UK SMEs this year, 15% higher than lending levels in
2010.
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By GlobalDataThe withdrawal by Barclays can be
seen as a blow to business investment, coming as demand for asset
finance from small business is rebounding.
Increase in
demand
Syscap chief executive Philip White
said: “We are witnessing a definite increase in demand for asset
finance from small businesses and I would be surprised if Barclays
were not seeing the same.”
Meanwhile RBS-owned Lombard has
confirmed its commitment to provide asset finance to small
companies.
Managing director Alex Baldock
said: “Investment in capital assets stalled during the downturn and
is now picking up.
“This growth must continue for our
SMEs to be competitive, and the asset finance industry has an
obligation to support this growth.
“Lombard intends to continue
fulfilling its responsibilities to Britain’s entrepreneurs, and it
remains open and hungry for business in this sector.”
The Barclays story is part of a
larger debate about how much banks are actually lending and how
much SMEs are looking for finance.
A recent study carried out by
financial research specialist Charterhouse Research has argued that
small businesses are reluctant to approach banks in the first
place.
According to the survey, only one
third of firms with a turnover under £1bn sought some form of
finance from the banks in 2010.
Around one in four SMEs involved in
the study responded that availability of funding was poor. For
Charterhouse director Mark Dennis, this is because of a divergence
between perception and reality.
He said: “We believe there is a
blanket perception that banks are simply not lending, particularly
among start-ups and smaller firms, so they’re not even putting in
the request.
“Yet our study also shows that the
banks are indeed lending, with the majority of applications in 2010
being granted in full.”
Business organisations have argued
that there is much to be done.
The Federation of Small Businesses
(FSB) chairman John Walker said that the main problem for small
businesses is the cost of credit.
He said: “To achieve robust
economic recovery, the smallest firms and start-ups need to have
access to finance, but the Project Merlin commitments – as with
previous lending targets – are unenforceable.”
FSB survey figures have confirmed
that around 84% of small businesses are not approaching the bank
for credit, but the federation claims that this is because they
have already been refused or because the cost is too high.
The Forum of Private Business has
been equally sceptical.
Chief executive Phil Orford said:
“The banks say demand is down. They say applications are running at
an 80% acceptance rate.
“If this is the case, how do they
intend to increase lending to small firms by 15%? I believe the
answer is that they must review risk criteria and be less punitive
on viability assessments.”
Banks – particularly those which
were bailed out by the UK government in 2009 – have been quick in
producing data showing that they have increased their SME lending
as part of their commitment with the government.
Lloyds Banking Group said it lent
£11bn to SMEs in 2010, helped in excess of 100,000 start-up
businesses and approved over 80% of lending applications from SMEs
– growing net lending to its core SME customers by 2.1 per cent
over 2009.
RBS had a similar story to tell. It
helped 103,329 new businesses to enter the market in 2010, a 1.9%
increase on 2009. It lent £55.3bn to UK businesses, of which over
£30bn went to SMEs – with acceptance rates above 85%.
The lender added that SME lending
is subdued, with loan applications down 9% on 2009 and overdraft
utilisation rates back to 45%, from 47% in 2009 – which for the
bank demonstrate that credit demand among SMEs remains muted.
Lombard Business
Direct
Nevertheless, RBS asset finance
subsidiary Lombard has seen an increase in SME lending. Its SME
business increased 10% last year to £1.2bn, with Lombard Business
Direct – which provides asset finance to smaller businesses – up by
44%.
Lombard said it created 20,000 new
customer accounts for SMEs in 2010, and saw increases across a
number of business centres, from a 26% increase in vans, a 23%
increase in high-tech and IT equipment, and a 6% increase in
construction equipment and production machinery.
Syscap maintains that asset finance
remains the best financing option for SMEs planning to invest in
business assets.
White said: “Asset finance allows
companies to maintain a healthy cash flow and to upgrade their
equipment when it becomes obsolete.”
See also: Has relationship banking had its
day?
See also: Barclays is lending responsibly to support
business
