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June 2, 2011updated 12 Apr 2017 4:14pm

Asset finance surges forward

A surge in winter business by asset finance brokers in the UK has consolidated recovery, but it still has a long way to go The recovery of the asset finance industry has been boosted by strong demand from small and medium-sized enterprises (SMEs) who have complained about difficulties in obtaining bank loans and engineering and transport companies that have needed finance for new assets.

By Nick Huber

A surge in winter business by asset finance brokers in the UK has consolidated recovery, but it still has a long way to go. Nick Huber reports.

 

Line graph showing broker-introduced finance, December to FebruaryThe recovery of the asset finance industry has been boosted by strong demand from small and medium-sized enterprises (SMEs) – who have complained about difficulties in obtaining bank loans – and engineering and transport companies that have needed finance for new assets.

Broker-introduced asset finance was worth £714m (€808m) in the three months to February 2011 – a 31% rise compared to the same period last year – according to figures from the Finance & Leasing Association (FLA).

In the last year before the banking crisis shook the global economy, broker-introduced finance was worth £941m in 2007 to 2008. The market then plunged by 41% to £665m in 2008 to 2009 as credit markets seized up.

Julian Rose, head of asset finance at the FLA said the latest figures for asset-finance broking, based on a survey of 56 UK asset finance companies, showed that the industry had “turned a corner”.

Rose said: “Commercial vehicles, plant and machinery, and business equipment have led the charge, showing the most growth. Brokers have a role to play in helping small businesses to find the best deals available across the market.”

Adam Tyler, chief executive of the National Association of Commercial Finance Brokers (NACFB), said that recent increased activity among SMEs indicated that they were investing in new equipment, which would boost the economy.

Senior figures in the asset finance industry said the FLA figures highlighted the resilience of asset-finance brokers, who they claimed had weathered the economic downturn better than firms providing asset finance directly to customers.

Chris Stamper, chief executive of ING Lease UK, the UK’s largest funder of broker finance, said: “Three or four years ago some competitors were saying that broker asset finance wouldn’t last, but it has done better than any other sector in asset finance since the banking crisis.”

After the banking crisis, some of the biggest leasing companies, many of them part of high street banks, axed thousands of jobs in an effort to cut costs.

A retrenchment of some leasing businesses, coupled with banks tightening lending criteria, has therefore provided an opportunity for asset-finance brokers to fill gaps in the market.

“Brokers can do the legwork and get a good [finance] deal for the customer,” said Stamper.

However, the fledgling recovery in the asset finance market is likely to slow during the rest of this year, with increased private sector investment compensating for spending cuts in central and local government, Stamper predicted.

Nick Simpson, director of Yorkshire-based Asset Finance Solutions, remains cautiously optimistic about the prospects for the broking sector.

Simpson said growing speculation that interest rates will rise in the next year could prompt more businesses that are planning to raise finance to fix asset finance deals at a competitive interest rate now.

Many asset-finance brokers are currently small operations. However, as the industry matures, some experts believe that broker firms will become bigger, in order to maintain growth and benefit from economies of scale.

This could see the emergence of “super brokers” within asset finance, but not for at least seven to 12 years, it was predicted at an industry conference earlier this year.

Mark Picken, ING vice-president, speaking at the NACFB asset finance seminar in March, said: “The days of the super broker is still 7 to 12 years away. It will happen when smaller brokers retire. Someone will have to soak up the contacts book of those smaller, niche players who are writing their own books. Brokers will pick up books off one-man bands.”

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