Rusting Britain

The recovery and growth of many small to medium-sized businesses (SMEs) in the UK is at risk because firms cannot replace vital operating equipment. The current recession has seen business investment in equipment fall more than in either of the two previous recessions. Due to poor cash flow, uncertainty over future growth, a decline in the availability of tax capital allowances, and the increasing costs of new equipment, UK businesses have either been unable or reluctant to invest. Research* supported by the Finance and Leasing Association (FLA) has shown the extent of the problem and the wider impacts it will have on the economic recovery of Britain. Since the start of the recession in 2008 business investment has declined by 27% and continues to fall. 16% of SMEs are being affected because they havent been able to replace operating equipment during the recession, with 6% reporting it is posing a risk their business. Strongest impacts felt in manufacturing (25% of all firms), and in the North East of England (23%).

Get businesses investing

In order for SMEs to grow, access to affordable sources of finance is critical. One of these sources asset finance (leasing and hire purchase) is of increasing importance in the current economic conditions. Leasing allows businesses to avoid having to pay for equipment upfront; particularly important when cash is tight.

Why asset finance?

Easy to access because it is secured on the asset being financed, rather that on other business assets. Provided for fixed periods, typically 3 to 5 years, and are generally noncancellable by the lender, providing certainty to businesses. Helps businesses to manage their cash flow, and obtain the equipment they need, when they need it, and at a reasonable cost.

Helping SMEs to invest

To help SMEs to invest in the new equipment they need the Government should remove the red tape that excludes leased equipment from existing SME support schemes: Make all leased equipment eligible for tax enhanced capital allowances, to reduce the cost and increase the availability of lease finance. Extend the Enterprise Finance Guarantee (or an equivalent form of risk support) to leasing to facilitate the provision of asset finance to more SMEs.

Business investment is key to economic recovery

Leasing has a special role to play in the economic recovery to ensure businesses have the equipment they need when demand starts to rise, particularly considering the job creation the demand is likely to generate. If leasing were to increase by an additional 5 billion in 2010, this would support 38,000 new jobs in the short term, and many more in the longer term. Asset finance funds almost 30% of all UK business capital investment. About a third of businesses with a turnover up to 50 million that use external funding, rely on asset finance. For businesses with more than 10 employees, asset finance is used more than term bank loans, and there is particularly heavy use in the manufacturing and transport sectors, and in the North East, North West and South West.

* Research:

Role of leasing in the UKs economic recovery, Oxford Economics, Spring 2010 Recession effects on new equipment investment in SMEs, The Open University Business School, March 2010

To find out more, please contact us:

Finance & Leasing Association Imperial House 15-19 Kingsway London WC2B 6UN info@fla.org.uk www.fla.org.uk T 020 7836 6511 F 020 7420 9600