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April 25, 2019

Is there an increasing demand for equipment finance?

By Christopher Marchant

Businesses that use equipment on finance can find numerous advantages to this strategy, such as preserving current capital and saving money through tax benefits.

There have been several developments in the sector showing that demand for equipment finance is growing  across a wide range of industries.

Construction equipment financing

UK construction and agricultural industry funder JCB Finance has now lent £1bn for the purchase of machinery equipment.

JCB Finance was set up in February 1970 under the name JCB Credit. Today JCB Finance provides hire purchase and leasing options for UK business customers and supports the JCB UK dealer network and has facilitated the purchase of more than 250,000 JCB machines over the past 49 years. Including money loaned to acquire other plant and vehicles, JCB Finance has lent more than £13bn to UK businesses to help them grow and invest.

Lack of equipment finance costs investment opportunities

The UK automotive sector is missing out on £25bn due to a lack of finance, according to SME finance provider Wyelands Bank.

The research of UK mid-sized automotive manufacturers, turning over £10m to £300m, showed that nearly all firms (96%) are held back because of a lack of finance. According to Wyelands difficulties raising finance to support their growth have stopped businesses from winning new contracts and that has stifled new job creation.

Each automotive firm said that the difficulties raising finance meant they had missed out on an average of £24.8m in revenues and an average of 24 new contracts.  These would have enabled each firm to create 21 new jobs.

The 1,605 UK businesses surveyed had collectively missed out on 24,284 contracts.  These would have created 11,802 jobs and £25bn in revenues.

Huge deals in equipment finance

Multinational vendor finance company DLL has closed a securitisation transaction in the United States for $500m (€443m).

This is the fifth asset-backed securitisation (ABS) transaction (and fourth in United States) for DLL since November 2017 totaling over $3.3bn.

This securitisation is backed primarily by a portfolio of agricultural equipment loans and leases in the United States. According to DLL the transaction included only AAA notes rated A1+/P1 or AAA / Aaa by Standard & Poor’s and Moody’s ratings agencies respectively.

Assessing the demand for equipment finance

That DLL is confident enough to issue these sort of securitisation deals is a sign that the caution following the 2008 financial crisis has largely dissipated from both lender and consumer. Lenders like JCB are going from strength to strength on the back of demand for equipment finance, while the Wyelands Bank report shows that there is still a huge amount of missed opportunity out there for businesses. Nevertheless equipment finance seems to be on the ascendancy, and global year-on-year increases look to continue unabated for the foreseeable future.

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