Rumours of the catering industry’s death have been greatly exaggerated in financial circles – or so it would seem, from the thousands of solvent small businesses currently trying, and failing, to make even the most unambitious equipment purchases through asset finance.

Sam O’Donnell, managing director of catering equipment supplier Absolute Catering Equipment, placed £300,000 of leasing business with funders including BOS Equipment Finance and Lombard in the first three quarters of 2008, before the market hit a brick wall.

“I’ve submitted around 45 leases since Christmas, and only placed one.” Says O’Donnell, talking about a £1,000 dishwasher deal signed onto the book of Shire Leasing. “The sales climate isn’t great for outright purchase, but in leasing terms, the market is literally dead.”

To the UK’s risk-averse lending giants, an industry within which 39 pubs close every week (in January at least – according to the British Beer and Pub association, this number is still rising) is one to stay well away from.

But are they missing a hidden and potentially lucrative market by evacuating catering as a whole? One broker told Leasing Life that the vast majority of refused leasing applications he saw were from small, new cafes and delis, looking to finance single, business critical items such as glass-fronted service counters in the £1-3000 value range.

He also mentioned the example of a Lancashire restaurant which had made a stable profit for eight years since inception, but whose owner had been refused asset finance on a £5,000 oven on the basis of not being a homeowner.

From the perspective of the industry’s captive funders, the sector doesn’t seem dead at all. Carol Hatten, head of the leasing business at catering equipment manufacturer Hobart UK, says that her division has only seen an increase in leasing business since the banks dropped out of the sector.

Hobart Leasing and Finance, which processes several million pounds of sales-aid business yearly through funding from American parent ITW, has not seen a significant increase in arrears this year. Meanwhile, another independent funder of catering equipment told Leasing Life that no more than 10 percent of customers had missed payments in the last six months.

Also, according to Hatten, many catering businesses are only now coming to realise that leasing is an option when purchasing catering equipment, such as warewashers and cooking equipment in the £3-6,000 range. “Many of our customers associate leasing with the car market, and are often pleasantly surprised to find that rental is an option,” she comments, suggesting that leasing penetration has a lot of growth potential in the sector.

Hatten also says that catering assets are a good proposition for secondary rental income, with many of Hobart’s mixers and dishwashers being kept on by companies more than 10 years past the expiration of original lease terms.

Nevertheless, a gaping hole still remains in the catering finance market, and very few funders seem keen to pick up the slack. Notable exceptions include Universal Leasing subsidiary Admiral Leasing, which recently developed a sales-aid partnership with fitted kitchen provider Vision Commercial Kitchens, and Bibby Leasing, which is actively seeking new business in the catering sector.

Bibby, as the sole financial sector member of the Catering Equipment Distributors Association (CEDA), is “committed” to remaining in the sector, said managing director Carol Roberts. And with the huge volume of applications from which to choose, the UK’s other more flexible funders might do well to give catering a second thought.

Contributed by: Fred Crawley, Reporter – Leasing Life & Motor Finance