The previous Labour government’s flagship Enterprise Finance Guarantee (EFG) scheme excluded leasing from the forms of finance it was prepared to guarantee, and according to Syscap, this exclusion partly contributed to a drop in business investment. Figures released by the UK’s Finance and Leasing Association (FLA) reveal that the amount of business finance made available to British businesses was £4.1bn in the first quarter of 2010, down 25% from the year-ago period.

Philip White, chief executive of Syscap, said: “Because the vast majority of SMEs choose to fund capital investment through leasing, the previous government’s decision to exclude leasing from a loan guarantee scheme was a mistake. It is something the new coalition should quickly rectify. For SMEs without huge capital reserves lease finance is the most attractive funding option available, so if we are going to see an upgrade to the EFG scheme then surely leasing should be included?”

Syscap is also calling on the new coalition government to clarify whether or not they plan to pare back capital allowances. According to White, reducing them could jeopardise the ability of businesses to secure capital investment.

“The lack of real detail in the coalition document on capital allowances is cause for concern for UK businesses.” he said. “We are not out of the economic woods yet, and whilst we are told that manufacturing industries will be protected, many worry that when governments start talking about ‘simplifying’ taxes, someone is going to lose out. Reducing capital allowances to fund a cut in corporation tax could amount to robbing Peter to pay Paul. The removal of capital allowances will disincentivise people from investing in business assets. This investment is vital for the economic recovery.”

Syscap is one of several organisations which have urged the new coalition government to set out or clarify various aspects of tax or regulatory law as they relate to the UK leasing and asset finance sectors. Earlier this week, ACFO, the UK non-profit industry body representing fleet vehicle businesses, called for talks with the government in a bid to to ensure that future tax changes take account of the availability of low and zero emission vehicles.

Article contributed by Asset Finance International

As the leasing industry has cottoned on to the need to spot clients in distress as early as possible, companies specialising in business recovery and restructuring have begun offering their services as an “early warning” service for lessors.

Turnaround lender Gordon Brothers (GB) is known to be in talks with a lender about such a programme, while advisory firm and intermediary Vantis has seen a big increase in the number of funders looking to have portfolios reviewed for possible trouble ahead.

One of the major problems faced by asset financiers in the wake of recession has been the perception of lenders as being out of touch with their customers’ financial problems up until the point of missed payments, or worse, bankruptcy.

Mark O’Neil, joint managing director of Vantis’ Commercial and Asset Finance division (VCAF), thinks this is a result of a historical tendency for many lenders, when thinking of clients in distress, to only consider asset value realisation in the event of a liquidation.

He thinks that as client insolvencies have increased, lessors have begun to think “less transactionally”, looking at all the issues surrounding a business holding financed assets, and the revenue generated by those assets as part of a going concern, rather than as a disposals prospect.

In essence, this means that leasing companies have become more concerned with ensuring the survival of clients – a trend that has aligned their interests with those of turnaround lenders such as Gordon Brothers.

Alex Brick, GB’s European CEO, explains how it works in the case of a leasing client that has been identified as distressed: “Our aim is to support a restructuring with additional liquidity, and then provide management support (or in some circumstances replace management) to help the restructuring of the business.”

Presuming the client is then returned to profitability, GB can convert remaining debt into equity and go on to enjoy the gains on the share value of the newly successful business. Meanwhile, the leasing company is ensured continuing payments as a result of GB’s short term fund offering, and avoids a potentially messy insolvency.

However, while Brick feels that a successful restructuring can take place “very late in the day”, it is crucial to act as early as possible. “If your customer is already missing payments, it’s probably too late – you need to restructure long before the client is in danger of insolvency.”

GB’s knowledge of this timescale is what has caused it to be recently approached to provide an early warning system for a large lender, something that many international firms have gone to great expense to build for themselves.

Barclays Asset & Sales Finance, for example, was quick in diverting senior sales resources to form such a programme in 2008, while UniCredit Leasing, under risk director Jens Hagen, reorganised vast swathes of staff to spot turbulence in client balance sheets in time to avert disaster.

VCAF, which acts as an intermediary for leasing companies, has taken things one step further by offering funders pre-lend reviews of companies whose funding requests it has interviewed.

Mark O’Neil of VCAF says that such a service highlights important issues in a client’s business from the very start of a contract, and gives lenders an idea of what product will best suit a company’s balance sheet – such as altered payment structures for businesses with seasonal income.

In addition, when VCAF introduces a deal on behalf of a client, it will stay in touch with the lessee at least on a quarterly basis in order to assess its ability to pay lease instalments and offer further assistance as required. “The client can often be afraid to talk to the lender about financial difficulty,” says O’Neil, “and so we will talk on their behalf”.

The kind of skills that Vantis and GB are demonstrating by looking at lessors’ balance sheets for stress points will not be wasted when the current climate of high insolvency risk fades away, however.

VCAF, for example, has recently been asked by a large bank to look over a portfolio -  not one of its own, but that it seeks to buy. With the risk lessons of the recession well learnt, the M&A climate, when it returns to health, will be one much more concerned with the future health of businesses in targeted portfolios.

How soon will that be? “There are more companies in the leasing market than you might think, waiting with their cheque books in hand” says O’Neil. Watch this space.

Article contributed by Fred Crawley – Senior Reporter, Leasing Life & Motor Finance

Easymeeting, a joint venture between Norwegian video conferencing provider Avikom and British reseller and installer Quest Mark, was founded in 2009 with the intention of introducing video conferencing in the SME sector.

Video conferencing in the UK has seen a much greater uptake by large corporate and public sector customers than by SMEs. However, Kevin O’Shea, Easymeeting’s head of EMEA business development, believes there is great potential for smaller businesses to take up the technology.

One strategy for encouraging them to do so will be to lower the barrier on capital investment, by offering systems on a leasing option with packages comprising hardware, broadband connectivity and installation and support services.

Whereas Questmark has had little experience of selling video conference systems through a leasing model, Avikom has used the strategy in Scandinavia to maintain regular sales growth over the last few years.

So far, Easymeeting has undertaken several initial leasing sales through Syscap, the technology led introducer and funding provider based in Wimbledon. The relationship came about due to Syscap’s existing financing relationship with Imago Group Plc, one of Easymeeting’s equipment suppliers.

However, O’Shea says that the company is looking to broaden its range of leasing partners as business picks up.

Back in the Nordics, Easymeeting has partnered with two leading office equipment manufacturers. Both companies are well known for selling primarily through leasing, and have their own well developed captive finance companies, although have not yet been named.

The SME customer base of these companies overlaps with that targeted by Easymeeting, providing an opportunity for cross selling to a market already receptive to the idea of purchase through leasing.

O’Shea commented: “We want to make video communications an integral part of everyday business, and to do that we’ve got to make it easy for people to have access to this form of communication.

“The equipment is available to SMEs as a leasing package rather than through outright purchase. It makes it easier for them, because most SMEs will buy some form of communications on a lease with a fixed monthly cost rather than a large sum of money.”

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

 Image copyright: Flickr

The question hit on a salient issue. It has since emerged that a number of leasing companies are adding factoring and invoice discounting (ID) to their portfolios. Those involved in this process, which will potentially add millions of euros to balance sheets, include GE Capital, Close Asset Finance, Crédit Agricole and Lloyds TSB Commercial Finance, as well as several smaller players.

GE Capital’s integration, just completed after a year-long process, brings fleet, contract hire, business lending, factoring and equipment finance under one roof. Earlier this year, CA Leasing and Eurofactor launched a similar joint project with the aim of increasing potential revenues and combining their support functions.

Moving the two units closer together makes a lot of sense – both CA Leasing and Eurofactor are profitable businesses that continue to grow despite the current downturn, and there is no doubt the two businesses have back-office functions in common which they could easily share.

Also, Close has just launched Close Commercial Finance (CCF) which brings together its leasing arm, Close Asset Finance, and the bank’s factoring business. Meanwhile, Lloyds TSB Commercial Finance (LTSBCF), which absorbed Lloyds TSB’s asset finance business six years ago and now supplies 22 percent of the UK’s invoice discounting, is now absorbing the old Bank of Scotland Cashflow Finance business.

Last month, the results of a UK business intelligence survey conducted by Ipsos MORI found the proportion of SMEs claiming to use asset finance had crept up from 16 percent to only 17 percent between winter 2008 and summer 2009. The proportion of businesses using invoice discounting, however, shot from 12 percent to more than 16 percent, a 33 percent increase.

No surprise, then, that 55 percent of respondents to Vervaet’s question answered “Yes, we need to broaden our scope to satisfy customers going forward”, and 24 percent said they had already widened their product portfolio to include asset-based products in response to the recession.

At Close, the integration has involved training for staff on both sides of the integration, aimed at promoting recognition of leasing customers’ needs for invoice discounting, and vice versa. Mike Barley, who runs Close’s leasing and factoring arms, said he has seen particularly impressive returns from its ID customers, and plans to offer ‘packaged’ deals incorporating both leasing and factoring.

“Sales teams are specialised in particular facilities, and cross-refer opportunities to each other. Furthermore, they work with bank relationship managers at a local level”

A major advantage to packaged deals is the demand for multi-product support from distressed companies – a client sector that is set to keep on growing in 2010. For ‘phoenix’ firms, for example, a solid ID facility is often what seals the deal in terms of a risk decision on plant finance. No surprise, then, that CCF is seeking business introductions from insolvency practitioners and restructuring advisors, forming a partnership with the Institute of Chartered Accountants with this aim specifically in mind.

Centric Commercial Finance is a newer lender with invoice discounting at its core. It has excelled in a combined offering, growing steadily through lending primarily to ‘disillusioned’ clients since its timely inception on the eve of 2007. Sales director Andrew Rutherford explained that, unlike at CCF, asset finance is a relatively small part of Centric’s lending and often used as a ‘bolt-on’ facility to invoice discounting. It is most commonly used, he said, to refinance clients’ existing assets in order to release liquidity.

Centric’s lending is about using complementary products to keep struggling businesses alive where traditional bank facilities have failed, and this works because of its very close relationship with clients. Communication with customers occurs at director level, with in-depth discussion of business needs on a monthly or even weekly basis. Furthermore, said Rutherford, should a client fail, Centric is usually in a good position to take some control over the business and recover its position. With this extremely hands-on approach, Centric rides the line between an asset finance provider and an invoice discounter.

This intimacy, however, cannot be scaled up to the size of a volume lender. For the largest bank subsidiaries, even the teething problems faced by CCF are dwarfed by the question of how to acclimatise a mass frontline sales force with an entirely new product set.

For this reason among others, large-scale combined lenders are rare. RBS’s Invoice Discounting business runs completely independently of asset finance giant Lombard, while Bibby Financial Services, held in high esteem as a factoring provider, supplies leasing through a separate business. ING Lease, which absorbed ID into many of its country operations back in 2006, last year planned to carry out such an integration in the UK as well. A  spokesperson last month said this was no longer on the agenda.

Most interesting on this level, perhaps, is LTSBCF, which is now absorbing the old Bank of Scotland business. Ian Byers of LTSBCF explained: “Sales teams are specialised in particular facilities, and cross-refer opportunities to each other. Furthermore, they work with bank relationship managers at a local level. “Supplementing this are further specialist teams – ‘fast track’ telesales teams for simpler asset finance deals, dedicated debtor insurance teams, dedicated supplier finance teams, and specialist big ticket asset teams.”

LTSBCF has deployed its specialisms well, but Byers admitted the leasing and asset finance products on offer are fairly “vanilla”. But then again, LTSBCF is much more of a player in the ID sphere than it is in the world of leasing.

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

Article image copyright: Flickr

Taken as a whole, 2009 has ushered in far more business closures than fresh starts. In recent weeks, however, two high-profile moves have put well-respected business builders in the enviable – if daunting – position of putting together a brand new asset finance business.

The first is Richard Briscoe, formerly of Arkle Finance, who at the time of writing had just walked into his new office, situated in the grounds of Castle Ashby, Northampton.

He is there to build a business under the banner of Close Asset Finance, which he will take to the market as Close Business Finance, a unit of the group’s overall lending operation.

The objective, says Briscoe, is to create something very much along the lines of Arkle precursor Weatherbys Finance, which he created from scratch in 2002. Essentially, this will mean a broker-led operation with a focus on ‘soft’ assets such as catering equipment and shop and office fittings, concentrating on ticket sizes between £5,000 (€5,500) and £50,000.

The strategic resources that the new business can draw on will be more extensive than those that were available to Briscoe when building Weatherbys – the Close Asset Finance group already runs a number of finance companies with gross receivables in excess of £800 million, and has been in the leasing business for 22 years.

Weatherbys was not his first experience with growing a business. In 1994, he began his career with independent lender Broadcastle, as assistant to the company’s chief executive.

According to Briscoe, this period of his career acted as a kind of apprenticeship in how to run and develop an asset finance company. He became head of underwriting during his eight-year tenure, and saw the business grow considerably. In fact, three years after his departure for Weatherbys, Broadcastle was bought by German manufacturer Siemens for £41.5 million.

Briscoe will bring more than experience to the new venture: some of the brokers that Close Business Finance will inherit as introducers have been trusted sources for business since his earliest days at Broadcastle.

Although he stresses that he will have his eye very much more on quality then on quantity of business, Briscoe anticipates lending £15 million-£18 million in CBF’s first year. In two years, he hopes to have doubled the amount being lent, and have around 12 staff in his office – but for now, he will have to make do with setting up the phone system.

Elsewhere in UK banking, George Ashworth has an awful lot of work on his plate – but he sounds more than happy with the prospect.

No small wonder – he has just moved from a senior international vendor services role within the troubled Belgo Dutch operation Fortis Lease, where he headed up international vendor business, to the position of head of asset finance at brand new bank Aldermore.

Aldermore, owned by private equity house AnaCap, plans to grow a flourishing asset finance and leasing business from the portfolio of pre-buyout incarnation Ruffler Bank, which specialised in financing coin-operated machines.

AnaCap bought Ruffler Bank earlier this year, and combined it with other acquisition Base Commercial Mortgages to create the new lender.

According to Ashworth, the direction that Aldermore will take is not set in stone: “Keeping our options open is important as there are plenty of opportunities”. That said, “the main objective for the asset finance business”, he stresses, “is to support the bank’s overall ambition to be the UK’s number one SME lender of choice”.

Ashworth advises that there will be a focus on funding ‘hard’, tangible assets of easily determinable value, with potential for longevity. He also hinted the funding model behind the successful Ruffler coin-op business might well be applied to other sectors.

Much like Briscoe’s new business, Aldermore will also be making good use of broker introductions as it gets running – it is already benefitting from AnaCap sibling Syscap, in which it has a sizeable equity stake, as a source of good quality IT business.

Beyond that, the bank’s distribution strategy, much like its asset focus, is undecided. Ashworth is weighing up the options, but feels that, for now at least, his immediate past experience of the vendor sector will be given a rest.

More immediately useful might be his experience as operations director for Lombard, a role he took on in 2000 before going on to head up the lessor’s sales and then business development functions.

Ashworth is not suggesting that Aldermore has growth ambitions on the scale of the RBS-owned colossus – like Briscoe, he underlines the importance of writing good rather than plentiful business – but he doesn’t deny that his past responsibilities have given him a good eye for putting together a robust model for volume lending.

First on the agenda is a new IT infrastructure. Phase I is due to be complete at the end of October, laying the foundations for Phase II to be prepared for Q2 next year. “Aldermore will then be well placed to handle a number of product offerings on a scalable basis.” says Ashworth.

People also feature prominently. Aldermore is looking to recruit a number of staff, with a new business development position in the North West and a credit risk function position currently under offer.

Ashworth is keen to recruit personnel with experience of every stage of the transactional process, since Aldermore’s business model is still evolving: “We are looking to recruit people incrementally who can add value both in our initial setting up phase and thereafter”, he says.

In any case, he says, by Christmas, the new asset finance unit will have a small but professional team in place, capable of writing business with the IT and business process infrastructure that has been completed by that point. Come Spring 2010, it looks as if Ashworth will be ready to begin lending in earnest.

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

Image copyright: Flickr

With the worst months of the recession having thinned the glut of low-risk deals once available in Europe, any lessor now relishes the prospect of fresh business with customers who are known to be of good quality.

For leasing companies which sit alongside other commercial finance units inside a larger family of businesses, a shrewd channel strategy at group level can leverage the sales of other divisions to boost asset finance performance, and use leasing relationships as a platform to sell other products.

Cross selling is no new concept, but 2009 seems to be seeing a marked trend for many financial services groups to integrate asset finance sales into a broader strategy aimed at selling a ‘solution’ rather than individual products.

Close Brothers Ltd, for example, began on August 1 to merge its Invoice Discounting and Asset Finance businesses into a single legal entity, under the banner of Close Commercial Finance. In time, CCF will also provide ancillary services such as foreign exchange through the support of embedded expert staff.

“Our aim, in addition to our traditional specialist lending activities” said Close Brothers director Mike Barley, “is to offer our SME customers an integrated one stop shop to meet all of their financing needs. Increasingly, we will be offering an integrated proposition to business introducers and customers”

In practice, the move will involve a weighty training programme for staff on both sides of the integration. This will be aimed at promoting recognition of customer need for invoice discounting in an asset finance relationship, and vice versa.

The integration is also expected to increase asset finance business introduction through professional services. Currently, invoice discounting business is regularly sourced through contact from SME accountants, and Barley hopes that by offering asset finance through the same organization as invoice finance, that particular channel will widen.

The UK’s largest banks are also in on the trend – HSBC Equipment Finance (HEF) already does 75 percent of its business with HSBC banking customers, and has embraced sales integration, not just as a mechanism for efficiency, but as a central part of a plan for rapid growth.

At the core of HEF’s expansion through the sales base of its parent is its structured finance team, which offers a much more holistic product (again, a ‘solution’) than just an isolated lease or contract hire.

Barclays Asset & Sales Finance, even more than HSBC EF perhaps, has set its sights on integration into a wider commercial finance operation. One of the fastest growing areas of Barclays Commercial Bank, BA&SF now operates effectively “as one team” with the rest of BCB, says asset finance head Alex Brown.

Within Barclays Commercial, he explains, there is no incentivisation linked to the sale of any particular product: “Our sales mechanism is all about selling the right solution to the customer. There are no product specific targets and we work closely together within the various teams.”

In addition, says Brown, the integration has proved “critical to continued safe lending” by collating risk information on customers. “We have achieved one ‘Risk’ view of the customer in Commercial Bank as a whole, giving us a new level of transparency and support to our customer base. Our interests and security should be cross collaterised, protecting all our interests.” He comments.

Prue Heron, director of recruitment company Commercial Finance People, says that integrating asset finance into a wider commercial finance offering avoids potential missed opportunities by specialists working in isolation, as well as offering economies of scale through staffing consolidation.

“In addition, from the customer’s viewpoint, this reduces the number of provider visits and ensures that an overall view is taken of the business. Products and services which complement each other are provided, to the benefit of the business.”

However, she warns, consolidation is not without its drawbacks: “In our experience, where organisations rely on one person to identify the need for, and sell the benefits of, a variety of commercial finance products, it rarely meets with success.”

“The knowledge and skills required for the identification of opportunities for the sale of asset finance, invoice finance or commercial banking are as different as the training and qualifications required for each of these sectors. They are all highly specialist areas and, whilst candidates do transfer between these sectors, it is only normally during period of candidate shortages when full training and shadowing is available.”

If a healthier economy presents itself next year, these multi-tasking lessors will have a chance to show how their adaptations to a sparse sales outlook perform in a less demanding market.

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

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The UK broker market, having developed in part to fill the void left by the decline of branch-based bank sales, relies for the most part on local connections and regional expertise to thrive.

To an expert in placing CCTV deals in Cornwall, for example, the thought of closing a vendor deal in the Tyrol with an Austrian funder, or placing a Bulgarian lease with a Greek bank, might seem patently insane.

But as the lights go out one by one at the broker desks of the blue chips, perhaps there is an opportunity for some British introducers to look across the sea to source and place business.

This does not necessarily mean entering into the potential nightmare world of cross border leasing – in the vendor world, for example, there are many suppliers operating across the continent with large revenues, but with small enough in-country volumes to have slipped under the radar of De Lage Landen, Raiffeisen, UniCredit and the like.

When properly approached and vetted by a broker, however, these suppliers are often snapped up by the big networks. Also, in addition to vendor programmes, the generally lower concentration of brokers to funders in Europe (particularly in newer markets), means less competition to place individual deals with lenders.

Oak Leasing, known for finding deals on the mainland (and indeed as far away as Tahiti), has found its highly-visited website to bring in a lot of Euro business from asset finance virgins looking for a solid funder.

Meanwhile, Netherlands broker veteran Frans Jansen of Leasing Services has found success in the past through working as a source of local knowledge, for English firms looking to split commission on placing a European deal.

By teaming up with a European broker in this way – especially one with a good spread of contacts among international network heads – a good deal of business can become available to any outfit that can bring in-depth asset knowledge to the table.

In Jansen’s experience, this sort of arrangement is only worthwhile on deals worth more than around €50,000, using fairly standard products, and involving relatively standard assets – not an option for brokers looking to find funding for highly specialised or unusual assets.

But although such deals can yield a commission rate of 5 percent split two ways, most such arrangements in reality will make a lower return, with one British broker saying 1.5 percent was an average figure.

In the eyes of Stephen Basset, head of the NACFB asset finance & leasing division, Euro business for UK business hunters is still “A lot of hard work for a relatively low return.” Aside from the commissions situation, he cites the unfamiliarity of some European lenders with standard British lease products and methods, as well as the very different level of IT system development in many European territories, as a major obstacle to many continental ambitions.

At the moment, it would seem that an eye for deals across the channel is something that only a handful of well connected and substantial brokers can afford to maintain, offering fairly meagre rewards despite the quality of business available.

But as the increasingly consolidatory legislative climate of the EU allows greater ease in cross-border business, and IT systems continue to develop (just look at Scandinavia for an example of a well developed processing culture), the legwork involved in looking abroad will continue to decrease.

When an easier borrowing climate allows more robust commissions into the equation on top of this, the work/reward balance may well shift to such an extent that UK brokers of all shapes and sizes look to extend their local business by several thousand miles…

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

Thomson’s is one of the slowly growing number of businesses to receive funding under the Enterprise Finance Guarantee scheme (EFG), which was launched this year in an effort to support SMEs through government-guaranteed loans.

EFG’s patron, the Department for Business Enterprise & Regulatory Reform (BERR), claims that £186 million of a potential 1.3 billion has now been distributed through the scheme to some 2,059 businesses, via 26 lenders (of which 21 have lent money so far). But how much genuine support is it offering?

By virtue of a 90 page business plan submitted to its bank, Lloyds TSB, Idscan was able to secure £175,000 through the EFG scheme, which it has used to provide asset finance for clients, through deals worth an average of £6,000 over a three year contract.

Although the money has been crucial to getting Idscan’s sales moving through the setup of an internal sales-aid programme, it has come at the cost of a major change in strategy. The extent of this becomes clear when I ask Thomson what advantages Idscan has gained through the new in-house asset finance offering.

“We can carry on doing business. That’s the only advantage.” He says sharply, before clarifying his position. “Just to make it clear, none of our customers have been able to get asset finance externally for almost nine months. It’s been impossible, and the situation has created a blockage in our cashflow.”

“We are in effect doing the job of the asset financers. In the long run it benefits us to the extent that we take the margin the asset finance house would normally take, but in the short run it doesn’t, because it works completely against our business model.”

For some companies, such as franking machine supplier Nationwide Franking Sense (NFS), the buildup of an internal finance provision facility dovetails with an existing strategy – NFS had previously run a small book off its own revenue. But in this case, the transition has not been so smooth.

Thomson explains that much of Idscan’s liquidity has historically been fed into research and development for new products, a situation aided by the upfront payments of clients using externally sourced asset finance. Now, he says, plans for product design, new programmers and increased European distribution have been mothballed while the firm’s capital is being plowed into sales aid.

Apart from these capital issues, the move to internal finance provision has changed Idscan’s sales model profoundly, and necessitated the uptake of a raft of new processes and priorities for the formerly R&D-aligned company.

Considering the sustained sales growth that Idscan saw for seven consecutive months prior to the bank’s clampdown on lending, it would seem that its business would be much better served if the EFG were applied directly to its customers.

After all, with its client base in the poorly-perceived leisure sector, the chances of external finance coming in from a balance sheet lender seem as slim as ever.

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

“Farming went through its own recession for a number of reasons between 1998 and 2004, but is historically an extremely resilient marketplace” he says, sharing the results of recent discussions with farming clients. “A weak pound has given us great meat export prices, people still need to eat, and the weather this season is promising a good return.”

To back this up he predicts that AGF, a group comprising 15 agricultural equipment finance brokers covering the length and breadth of the UK, is on target to process similar or improved levels of business to the €100 million it reported for its first full year of business in 2008.

The group was formed, with all members included as partners and shareholders, in response to a change in the agricultural finance market in early 2007. Virtually all funders in the sector except the captives of AGCO, Case New Holland, John Deere and Claas had withdrawn from direct finance sales, says McCarthy, leaving several manufacturers and dealers looking for finance providers that understood the sector.

AGF was quick to pool the resources of its members and fill the breach – but had the banks been right to leave?

McCarthy answers by quoting a well known statistic in his marketplace; that only around seven percent of the agricultural industry’s net worth is borrowed money. This, he explains, greatly reduced the impact of the credit crunch and subsequent bank paralysis on the industry compared to more credit-driven sectors such construction or haulage. Agriculture, he stresses, is a remarkably low risk area.

At the same time, he says, the credit appetite of the farm sector is constant and consistent, being mainly based on machinery which is highly specialised and in need of regular replacement – and thus well suited to finance and leasing.

In addition, he comments, there are ways in which the global recession has actually aided business. The slowdown in CEE and Asian markets has seen less demand for equipment in those regions, leading to a greater availability for British dealers and importers.

“The banks, however, hit by losses in other assets such as construction, property, and commercials, have tended to look at everyone in the same light and tightened things up across the board.” Says McCarthy. “We have repeatedly said: ‘look at this as a separate industry and a separate finance market, with a lower risk customer profile’, but to no avail.”

Looking forward to the rest of 2009, McCarthy notes that some new equipment prices have risen by as much as 20 percent recently – a good sign for residual values, if second-hand values manage to keep pace, he says.

As in the rest of the industry, it seems vendor partnerships are in favour in agriculture too – in the wake of agreements with baler maker Big Bale a year ago and Combine Harvester dealership Kevin Kirby in January, the group is on the verge of finalising a sales-aid venture with a leading milk equipment manufacturer.

AGF is also looking to expand the range of services it can arrange for farmers, by further strengthening a partnership with agricultural insurance specialist Farm & General.

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