Leasing is the way to beat the recession, FLA chief tells global businesses  Last Updated: 9 June, 2009 

Stephen Sklaroff will tell an international audience that leasing can be a major component of economic recovery. 

Delegates at Euromoney’s 27th Annual World Leasing Convention, which is being held in London today, already know that the arguments for leasing are, if anything, stronger during a recession. Many businesses prefer to lease essential business equipment - ranging from agricultural machinery to catering equipment – and leave the acquisition and disposal to the experts in asset finance.  

In 2008 asset finance provided £28.8 billion to business and the public sector. Asset finance is used by around 20% of all SMEs, and a third of SMEs seeking any external debt funding.  

Asset finance enables investment in real business assets, including plant and machinery, office technology, and commercial vehicles. It is accessible to businesses because it is secured on the asset being financed; it helps businesses to manage their cashflow; and it gives certainty to business because contracts cannot be cancelled by the lender.  

Commenting on the significance of asset finance as a catalyst for recovery, Stephen Sklaroff said: 

“I believe this is a market with significant potential for growth. Asset finance is vital to the recovery of the world economy from the current recession. Asset finance companies are especially well-placed to help Britain achieve a low carbon economy for the 21st Century. Leasing could be the first choice for many businesses and public sector enterprises seeking to invest in new equipment and in the latest technology.”

UK Business Finance August 2007 (Source: FLA)

                                 Dec 07             Dec 06           % change

Finance leasing      £476m            £540m               -12%

Operating leasing    £526m           £380m               38%

Hire Purchase         £1,041m          £873m               19%

Other finance         £416m              £261m                59%

                                  
UK business finance Apr 2007 (Source: Finance & Leasing Association)

Total: £2,035 m. Apr 2006: £1,846 m. Month change: 10%.

Finance leasing: £362 m. Apr 2006: £472 m. Month change: -23%.

Operating lease: £408 m. Apr 2006: £347 m. Month change: 18%.

Hire purchase: £972 m. Apr 2006: £804 m. Month change: 21%.

Other finance: £293 m. Apr 2006: £223 m. Month change: 31%.

 

The global IT leasing and financing market exceeded $70bn in 2006 and will pass the $100bn mark by 2010, according to IDC.

The analyst firm predicts that the sector, which encompasses leasing or financing IT equipment, software and IT-related services, will enjoy a compound annual growth rate of more than eight per cent over the next three years.

Equipment leasing, the industry's mainstay product, is expected to come under increasing pressure from changes in accounting treatment, heightened global competition and limited increases in IT equipment spending growth.

"New systems management and virtualisation software is poised to streamline end-user processes for provisioning and de-installing IT servers, storage and network equipment, driving fundamental changes in end-of-lease portfolio dynamics," said Joseph Pucciarelli, programme director for IDC's Technology Financing Strategies research team.

"This change, combined with shifts in the nature of the financed collateral, and strong market pressures driving consolidation among existing participants and new market entrants, has created an unparalleled market opportunity for captive and independent market providers such as CIT Group, GE Capital, HP Financial Services, IBM Global Financing, Microsoft Financing and Oracle Financing Division."

Pucciarelli added that the changing market for IT equipment leasing is likely to be overshadowed by strong growth in the financing of IT software and services.

Equipment leasing accounted for approximately 70 per cent of the worldwide leasing and financing volume in 2006.

IDC predicts that this share will drop by about 20 percentage points by 2010, while software and services financing will comprise approximately 50 per cent of the worldwide market.

Cash flow topped the list of concerns for entrepreneurs in the new year, according to a survey.

20 Dec 2006

The survey, by Bibby Financial Services, shows that 64 per cent of small business owners and managers in the UK vow to improve their cash flow.

This represents a 10 per cent increase on the figure last year, which Bibby believes is a reflection of the ‘up and down’ year for many small businesses, which have experienced rising costs such as rising interest rates and minimum wage hikes.

This years figures are in contrast to those of 2003 when the top new years resolution of business owners was to devote more time to family life, at 56 per cent, now at 53 per cent.

FLA (Finance & Leasing Association) figures for the asset finance industry for the second quarter of 2006. 

·     In the first six months of 2006 new leasing business rose by 8%.

·     Finance for plant, machinery and equipment grew by 3% in the second quarter but was up 12% in the six-month period ended June 2006.

·     In the first half of 2006 both finance leasing and hire purchase grew by 7% and 11% respectively compared with the same period in 2005.

Commenting on the latest figures, Geraldine Kilkelly, FLA’s Head of Research, said:

 “Results for the first half of 2006 indicate that the asset finance industry continues to be an important source of funding for businesses.  The latest figures suggest across the board growth with businesses spending on both fixed and mobile capital goods.”