Listening to the talk from delegates at this year’s EEF manufacturing conference (see opposite), I was struck by a real sense that a balance has been tipped in the perennial struggle to drive growth in the SME sector.
Strikingly, it seemed the big issue in business finance- at least from the point of view of the manufacturing sector – was no longer access to finance, but whether businesses wanted it in the first place.
When the recession first hit, small businesses were by turns perplexed, enraged and deeply worried by the sudden reticence of large banks to make funding available. Access to funding was the problem that needed to be fixed, and those able to offer funding through asset finance suddenly had a spectacular USP on their hands.
“Our doors are open” was the marketing message broadcast by Aldermore during its well-timed entrance into UK banking, and has been the attitude that has driven some very successful years for Close Asset Finance (a tip of the hat due here to departing CEO Roger Stone, interviewed on p10).
Just in the last two weeks, new bank Shawbrook has entered the UK asset finance arena through the acquisition of Singers Asset Finance, while United Trust Bank has signalled the start of a broker-powered expansion led by ex-IBJ sales head Martin Nixon. While I can’t speak for either organisation, I would imagine a good part of the attraction of building an asset finance business at present (discounting the margins involved) is the increased strength of the sales proposition driven by the continued paucity of cheaper alternatives.
I get the feeling, however, the situation may be changing. Is the simple fact of having money to lend enough to ensure increased business in 2012?
The UK’s banks fell very slightly short of the SME lending targets set by the Project Merlin initiative last year. But can this be put down to the now-familiar cliché of tight-fistedness among the giant lenders, or has the amount of credit offered to British businesses simply managed to satiate a hugely depressed demand from SMEs?
The Credit Conditions Survey published quarterly by the Bank of England only intensifies the question, asserting that credit made available to SMEs in quarter one of this year was largely the same as that in the fourth quarter of 2011, but that demand for credit from SMEs had dropped.
Anecdotal evidence from those I speak to in this sector seems to support the idea that a lack of finance applications from SMEs may be more of a factor in Britain’s lack of growth than the reticence of banks to lend. Philip White of Syscap summed it up most succinctly, saying: “Yes, we are seeing increased competition – but our biggest competitor is the decision not to invest.”
This is “Rusting Britain” as forewarned by the FLA: a nation of assets being sweated long past traditional replacement cycles. But why is demand slack?
Is it because SMEs have become too dispirited about the possibilities of accessing finance to even attempt it? If so, this remains the leasing industry’s time to shine.
Or is it because business lending in general is tightening both in price and lending terms (also reported by the BoE Credit Conditions Survey)? If this is the case, there’s all the more reason for asset finance providers to beef up the service value in their offerings, to give potential customers a better-than-ever sense of value for money.
Maybe, it’s just that businesses, hammered by the latest round of predictions of a further bout of recession, don’t want to take on debt in yet another year of repetitive and demoralising economic confusion. In which case, who can blame them.
There seem to be more and more equally justifiable explanations for SME stagnation, but very few answers to the problem. Whatever your experience of SME demand versus asset finance sector supply, I am keen to hear your views, especially if they contradict what’s suggested above.
Good luck out there, Fred Crawley