The credit crunch started in the
summer of 2007, and led to increased use of asset finance – at one
point, FLA statistics showed business finance 10 per cent up on
business levels the previous year.

But 18 months later the picture is very
different. On the surface, business levels held up well in 2008.
£28.8 billion (€32.8 billion) of new business was written by FLA
members in 2008, the same value as in 2007. But the aggregate
figure for the year hides the current picture. The fourth quarter
of 2008 showed business levels 20 per cent lower than in 2007. We
face the prospect that lending in 2009 will fall significantly
below 2008 levels, possibly by £5 billion or more.

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But this isn’t for lack of demand from
businesses. The most recent survey of sources of finance available
to small and medium-sized businesses, carried out by the Open
University and supported by the FLA, found asset finance is now
used by almost as many businesses as term bank loans. For
businesses with more than 10 employees, asset finance is the second
most popular form of debt, after overdrafts. Some 33 percent of
businesses that used any form of external debt used hire purchase
or leasing in Q4 2008, up from 25 percent at the end of 2007.

The downturn reflects difficulties in raising
funds to lend out, and a significant increase in the risks of
lending. We are therefore talking to the government about how it
can help the industry, and our business customers, move back
towards 2007 and 2008 levels of lending.

Measures aimed at freeing up the bank lending
market, while welcome, will not, of themselves, properly address
the problems. But we believe the government can help through some
straightforward and logical extensions of their existing
schemes.

At the heart of our proposals is finding a way
of allowing asset finance providers to continue lending to marginal
businesses at affordable rates. The level of support we need is
lower than that currently provided by the government for
traditional bank lending, because of the security of the assets
involved.

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Much work still needs to be done, and a
working group of senior executives of our asset finance division is
developing our detailed proposals. But I am hopeful that the
numbers will stack up, and that we will be able to find a solution
that is good for our business users, good for the industry, and
good for the government.

The author is the head of asset
finance at the Finance & Leasing Association