During 2010 UK Finance & Leasing Association (FLA) members provided some £70bn of credit to businesses. Nearly £20bn of that total went to support business investment in the private and public sectors, representing about 25% of all UK fixed capital investment – assets ranging from photocopiers to heavy machinery and railway rolling stock.

Chris Sutton, FLA chairman and managing director of Black Horse Finance, explained that the other £50bn, almost 30% of UK consumer lending, went direct to individuals.

“Cutting the cake another way,” he stressed, “over £18bn of the total figure financed more than half of all new private car sales, and 20% of the used car market. Taken together, that’s a huge contribution to UK plc.”

Asset finance leads the way

Addressing visitors at the FLA Annual Dinner in London on February 22, Sutton added: “In the asset finance market, always a good leading indicator of business investment, we saw strong growth in the final quarter of 2010, with finance for commercial vehicles and business equipment up by 20% on the previous year. And it was very good to see that, as a result of the FLA’s efforts, the new government’s Green Papers on business finance and financing business growth explicitly recognised the importance of asset finance for the economy.”

In addition, 2010 was a successful year for the FLA’s new asset finance Fraud Intelligence Sharing scheme, which saved the industry £7m during the year.

“If asset finance is to achieve its full potential in the UK economy,” Sutton stressed, “we need a genuinely level tax playing-field for leasing compared with outright purchase, and we have further to go to achieve that. As many of you here tonight will know, another major feature of our work on asset finance over the last year has been persuading the International Accounting Standards Board that its recent proposals for a new approach to accounting for leases would be expensive and unworkable.

“The good news is that we seem to be making progress, and we hope to see significant changes in the Standard Board’s final proposals later this year.”

NHS leasing

The FLA is also working to ensure that leasing is an attractive and viable option in schools and hospitals facing budget cuts, and the association is already in discussions with the relevant government departments. For example, it is working closely with the NHS to promote the use of leasing by cash-strapped hospital trusts.

Sutton added: “We’re also talking to the Government about the rise of green technology and the part asset finance can play in delivering a low carbon economy.”

Shake-up in consumer credit

In December, the Government published proposals for the biggest shake-up in consumer credit regulation for a generation.

Sutton explained: “Of course it’s no surprise that the Government has proposed that consumer credit regulation should transfer from the Office of Fair Trading to the new Financial Conduct Authority which will replace the Financial Services Association (FSA). But it has also suggested an entirely new regime, which would replace four decades of consumer credit law with a system based on the current FSA regime for the deposit-taking markets. The change could hardly be more fundamental.”

He added: “and the FLA will, of course, be working closely with the Government and the new regulators to ensure it is designed and implemented in a sensible way.”

Despite the recent recovery, the credit markets represented by the FLA have shrunk by more than a quarter over the last three years.

Motor finance market grows in 2010

Despite the slowdown in consumer demand for new car finance in the second half of the year, FLA members’ penetration of private new car sales increased from around 46% in 2009 to just over 52% in 2010.

And the second half of 2010 saw an upturn in consumer demand for used car finance.

Sutton said: “the FLA’s Specialist Automotive Finance (SAF) scheme has also been a great success story. There are currently 11,000 individuals registered for the online SAF competence test, and there are almost 1,000 dealerships SAF approved, including 15 of the top 20 UK dealer groups.

“We hope,” he stressed, “to get the rest during 2011.”

Fraud Unit saves £12m

A further £12m was saved through the FLA-funded Vehicle Fraud Unit, a partnership between the police and the motor finance industry to deal with vehicles obtained and driven illegally.

This year the FLA expects to see further good results from the new police presence at the ports to tackle motor fraud.

“The Government’s proposals for a new approach to credit regulation will of course be one of the dominating features of the FLA’s work on behalf of motor members in 2011. Meanwhile we will be dealing with the implementation of the current regulator’s new lending guidance.”

He concluded: “We now have 204 members, eight more than this time last year.”

Indeed, the latest industry figures published by the FLA illustrate the continued importance of asset finance agreements. One in three small businesses seeking external borrowing use asset finance, with more than a thousand entering into new arrangements every day.

Asset finance “most significant”

With 750,000 small and medium enterprises (SMEs) acquiring assets on leasing or hire purchase deals, asset finance has become the most significant form of debt-financed business investment, with around 250,000 new agreements being signed each year.

Julian Rose, head of asset finance at the FLA, confirmed: “A thousand small businesses are signing leasing and hire purchase agreements every day. With a second consecutive month of growth, our figures indicate that SMEs are increasingly using alternative forms of finance to obtain new and replacement equipment.”

FLA members proved more willing to risk capital in the later months of 2010 as they provided almost £1.7bn of investment in December, a 5% increase from 12 months before. Although the overall 2010 figures for business finance investment were down 9% on the previous year, they showed the potential for growth as the Q4 2010 figures were up 4% on the 2009 numbers, with £4.6bn invested.

The greatest improvement was in business equipment finance and commercial vehicle finance as they grew by 27% and 20% respectively in Q4. Conversely, IT equipment finance fell by 16% from Q4 2009.

The greatest difference though was in aircraft, ships and rolling stock finance. With only £766m invested in 2010, the figures show a drop of 46% from 2009, with Q4 2010 investment dropping by 57%. The December numbers also show the situation getting worse as £51m proved to be a 64% drop from the same month in 2009.

Chris Sutton

Article contributed by Brian Rogerson , Managing Editor – Asset Finance International