2016 was a busy year of developments and new entrants in the UK SME market. From the lessor side, there have been plenty of acquisitions, and new channels to markets created for lessors in growth mode. Brian Cantwell reports from the dedicated SME funding stream of the Leasing Life conference

In 2016 the ‘lending gap’ allowed challengers to grow and PE-backed funders to become established in the leasing market meaning that the SME funding market grew in 2016.

Amicus and PCFG are the most recent UK businesses to receive banking licences, allowing for the expansion of their brands, but there are others on the way.

It was this growth and dynamism of the sector that was part of the decision making to bring in a separate stream for UK SME lenders at the Leasing Life conference this year.


It is not only leasing businesses that have changed their operations, ambitions and targets, but the whole apparatus of Know Your Customer has developed.

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Potential clients have changed, as have the ways they interact with potential funding sources, argued Carl D’Ammassa, group managing director, business finance at Aldermore.

UK SME clients are increasingly born between 1980 and 2000.

“They’ve grown up in this tech world, they’re used to globalisation, and they’ve seen a significant amount of economic disruption,” said D’Ammassa.

“That’s had a significant influence on their behaviours and their experiences. (Millenials) are this first true digital generation that we have had, and they are using this knowledge as a group, in their banking, shopping, fitness, taxis… their whole life is really around digital, and yes they are using it on a more fanatical basis, even for dating.”

D’Ammassa said the millennial group is predicted by 2019 to be around 17m people in the UK, bigger than any other generation.

“They’re looking more at usership; they’re looking more at services, and that’s disrupting the traditional model,” he said.

“They don’t want to buy cars, they’re into sharing. Apps are everywhere, and this is how they want to conduct their lives.”
Millenials are concerned about wellness and exercise said D’Ammassa, and this influences the life choices that they make – as a result they are ‘loyalty-light’: by 2020, two-thirds will have left their current employer.

D’Ammassa urged the audience to learn from the ongoing changes to the customer demographic.

“(Millennials) are the finance directors of the future, and I think they are going to want to transact in their professional lives more like they do in their personal lives,” he said.

“As an industry we need to face that sooner than later. If you think the way we do things today is the way we do things tomorrow, then big problems will arise for us as an industry.”

Tailoring services for SMEs

As well as knowing your customer, an additional skill required for SME lessors is providing the right product to serve their needs.

Gavin Wraith-Carter, managing director, Hitachi Capital Business Finance, said that the context for the UK leasing market as an industry is that it is “pretty good” at liaising with its close stakeholders like the British Business Bank, the FCA, the FLA.

“We are really good at liaising with them and getting a feel for what those customers are doing,” said Wraith-Carter.

“The question that we have got is that how much insight does that give us to the actual end user? It’s always filtered, therefore is it right? Like many of us, we will perform market surveys, and we constantly ask questions.”

Wraith-Carter pointed out that Hitachi, along with a couple of its peers, runs a ‘business barometer’, reflecting the thoughts and attitudes of its customers, which was particularly key to elements of change.

“With Brexit, it’s more important to know what your customer is doing, saying and thinking,” he said.

It was brought to the audience’s attention that two-thirds of SMEs do not consider leasing when looking at their funding options.

“When I started in this business, I started at Lombard North Central, leasing coal wagons,” said Wraith-Carter.“As pits and mines closed their production, they moved the wagons around. With regards to Airbnb and Zipcar, aren’t we the original model? But they’re sexy, and we’re not?”

Data from slides and polls revealed that the first port of call in the UK for 80% of SME customers was at the bank that it perhaps had an existing relationship with for retail business.

In the US that figure dropped to 20% of SMEs; most of the SMEs were served by alternative finance providers.

Wraith-Carter also said that the highest driver for the two-thirds of SME businesses avoiding alternative finance or leasing was that SMEs wanted to keep fixed costs down due to uncertainty. A poll of the room showed that collaborating as an industry to better inform potential customers could change this, although there were obvious difficulties in coordinating such a plan.

Wraith-Carter said: “We need to think about chasing those two-thirds. The leasing industry is really good at going for the existing customers, where we can compete against each other and cut each other out; the so-called race to the bottom.
“What we are not very good at is finding new customers. And only by working together we have got a chance of getting those two-thirds of businesses that want our services.”

Changing propositions

Kieran Marshall, managing director at AIB Finance and Leasing, talked about how his bank has changed its proposition in the Republic of Ireland, and has gone into the market to drive growth through improved customer engagement and product design.

Marshall set the scene in the Republic of Ireland, from the Celtic Tiger to the crash which had virtually closed the leasing department at AIB by the time Marshall entered as managing director.

Unemployment rates have dropped from 15% to 7.5% in that time, and a lot of that has to do with foreign direct investment; many of the top ICT companies present in the country and more than 50% of the world’s financial services firms based there, with most of the major aircraft leasing businesses based in Ireland, and 40% of leased planes coming from the ROI.

Brexit is destined to impact heavily on the Irish economy, much more than any other neighbouring countries, and it is the top strategic issue for AIB’s SME leasing strategy.

Marshall said: “We are going to have to keep muddling along; the one thing that I really don’t like about it is the continued uncertainty. We are seeing certain capital investment decisions being delayed because of that, as the UK is our biggest trading partner.”

According to Marshall, AIB has invested heavily in its sales teams in order to focus them on the community’s needs, meaning that sales leads can offer more sales opportunities through strong customer engagement.

Marshall said that the biggest challenge, as was picked up on by D’Ammassa and Wraith-Carter, was a technological one and that it was important not to lose sight of the customer.

“Is the human dimension going to be lost? We put the customer first, simple and efficient, and as with regards to corporate ideals, talent and culture is key.”

As for answering the question posed by Wraith-Carter concerning raising awareness in SMEs about the leasing market, Marshall said: “Digital advertising is going to overtake TV advertising this year in terms of reach.

“One in every six minutes on the internet is spent on Facebook. That’s an amazingly powerful tool for spreading the message about our businesses.”

Group Q&A

Tarun Mistry opened the group Q&A session: “I wanted to set the scene as to how important the SME market is to the UK economy.

“There are lots of definitions of an SME from a financial perspective. Generally they are around the number of employees or turnover, and there are different definitions of SME within the HMRC, with the department for Business, Innovation and Skills, with Companies House; and then the EU definition of SMEs is split into three: one for micro, one for small and one for medium businesses.

“SMEs represent over 5m companies in the UK market, over 99% of all private registered companies, and they are spread across all sectors,” Mistry continued.

“They represent 60% of private sector employees, almost 16m people across the country, with London and the South East holding the highest concentration. The gross value-add they make to the national economy is over 50%.

“Eighty percent of SMEs still attend the four main high street banks, and the BBB statistics show that the amount of lending to SMEs by the main banks between 2012 and 2015 is in decline. The asset finance market and peer-to-peer lenders have been increasing their lending.

“It’s clear that the SME market is now approaching alternative things in terms of finance for their funding needs as the banks fall away.”

Mistry covered the form and changes in the market’s funding, including the growth of PE funds, VC-backed SMEs and debt funding, which is common in the US and may grow in the UK as a result of the decline in bank funding.

He said that the FLA was looking into more options for VC-backed debt funding, which enables SMEs to get past the grass-roots lending stage and grow into a scalable operation.

Locke Lord partner Jo Davis chaired the breakout session that also included Simon Goldie, head of asset finance at the FLA, Bernard Skivington, director of wholesale solutions at the British Business Bank, and Stuart Hall, regional sales manager UK and Ireland at Cisco Capital.

Skivington, formerly of Barclays Asset Finance, talked about the distinct under-investment by SMEs in the UK.

“You compare that space with France and Germany where asset finance penetration is much higher – 60% higher in France; in the UK it’s less than 40%.

“Asset finance is absolutely crucial in addressing that shortfall in funding in the UK, which is why the BBB highlighted it in its recent report, the SME Finance Monitor.”

Skivington also referenced research by Siemens. “By 2018, there will be €10bn locked up in trapped liquidity, because people have used their own resources to invest in assets.

“And then, of course,our own SME finance monitor report talked about the billions in cash sat in bank accounts for SMEs, which is a problem, as there are still working capital issues.

“There is absolutely something that the asset finance sector can do about this, through the refinancing of assets and the support of the SME sector,” said Skivington.