Average deal size on the rise
as corporates switch to leasing.
Go deeper with GlobalData
Many large lessors are still
struggling to source investments in SMEs, as smaller companies
continue to delay capital investments and key sectors such as
construction remain under pressure, a Leasing Life
investigation has revealed.
Several bank-owned lessors report that their
deal sizes have increased over recent months, as demand from SMEs
remains comparatively low.
One large UK-based leasing company reported
that its average deal size had doubled over the past year to reach
£200,000 (€246,414).
This rise in deal size is also explained by the
switch to leasing by some large corporates as their access to
funding via traditional lending routes, such as bank loans and
capital markets, remains restricted.
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By GlobalData
Staying committed
Bank-owned lessors and smaller leasing
companies alike, however, remain firmly and publicly committed to
investing in the SME market.
Several well-known lessors have even invested
in new software systems that will enable them to process large
numbers of smaller ticket deals. However, these companies do not
expect to see a large influx of flow deals until after the banking
crisis is over.
Lessors’ commitment to smaller businesses is in
line with European governments’ own action plans for recovery in
the SME sector.
Last month’s UK Budget, while infamous for its
emphasis on austerity and scaling-back of government investment,
still included aid packages for Britain’s ailing SMEs.
The main highlight was the cut in small
business corporation tax, paid by those making profits of less than
£300,000 a year. The rate will fall to 20% in April next year, from
its current level of 21%.
This tax break took place in the wake of a
government-backed commitment by semi-nationalised banks to invest
in the SME sector. Royal Bank of Scotland alone is committed to
investing £3bn in smaller companies over the next two years.
Leasing companies attributed the shortage of
demand from SMEs in part to the continued weak state of certain
sectors.
One senior leasing industry figure who did not
wish to be identified said: “Smaller customers we were dealing with
three years ago have not approached us for some time, even though
we have kept in regular contact. These companies are deferring
investment decisions until they see some more green shoots.”
Some sectors struggling
Unlike IT and health care leasing,
which have seen solid growth in terms of leasing volumes as
companies seek to avoid carrying unnecessary burdens on their
balance sheets, plant leasing has suffered badly as priorities
change and construction projects are shelved.
For example, a source at a major UK lessor said
the company in question had not seen any business in heavy plant
leasing for as much as 12 months.
And leasing of smaller items of machinery such
as forklift trucks has suffered equally, according to John
Bradshaw, sales manager at UK-based Bibby Leasing, who said that in
2009, the forklift market was down 41%, and the first quarter of
2010 saw the least active period in memory.
The sales figures, taken from a report by the
British Industrial Truck Association (BITA), are in line with
trends witnessed in the leasing industry, Bradshaw added.
While this shortage of demand in certain
sectors is apparent across Europe, it appears to be most acute in
parts of Central and Eastern Europe.
According to Krzysztof Bielecki, managing
director of ING Lease Holding and a specialist in leasing in
Central and Eastern Europe, leasing markets in Eastern Europe
remain under pressure with continued low demand from SMEs.
The Polish market, meanwhile, recovered during
the second quarter but left production levels “far below what they
were in 2007”, he added.
He painted a similarly difficult picture of the
leasing markets in Hungary and Romania, which are suffering from
low demand for both large and small ticket equipment leasing.
Success stories
Not all leasing companies are
struggling to lend to small businesses, however. Many with business
models committed to signing large volumes of small deals continue
to find the SME sector a lucrative source of new business. In the
main, such leasing companies source the bulk of their SME business
from brokers.
This suggests that SMEs are willing to make
smaller capital investments, while at the same time delaying larger
investments until after the banking crisis lifts.
Chris Stamper, head of ING Lease UK, said that
lending by his company to SMEs has increased by 15% over the last
year.
Also, Close Asset Finance subsidiary, Close
Business Finance (CBF), reported being pleased with new business
levels to SMEs – its core customers – so far this year.
Through its 25 broker sources of business, it
expects to sign about £20m of new business in 2010, according to
Richard Briscoe, CBF’s managing director. Last month CBF, which was
founded in November last year, signed about £2m of new
business.
