By Ken Maggs, Moore Thompson
Business owners are increasingly using leasing to fund their expansion, with the use of leases having jumped 12 per cent last year to its highest level in seven years, up to a value of £29.1bn over the year, £26bn higher than in 2014.
According to the Finance & Leasing Association, firms took out leases on a variety of assets, such as new vehicle fleets, IT systems and office equipment last year, with industry insiders saying that this formed part of the trend for small businesses to turn to non-bank lending to grow.
A spokesman for a business finance firm said that the Bank of England’s recent credit conditions survey suggests that loans to fund merger and acquisition deals have crowded out lending to small and medium-sized enterprises (SMEs). This may support the migration of SMEs to leasing firms rather than banks for finance.
He added that because asset finance allows businesses to borrow the cost of capital investment up front and spread the cost of repayment across fixed monthly payments, businesses can clarify their budgets and contain costs.
However, a recent report from Judge Business School’s Cambridge Centre for Alternative Finance suggests that the growth of alternative finance is slowing. According to its report, entitled Pushing Boundaries, although the alternative finance market grew by 161 per cent in 2014 on 2013, in 2015 the growth was only half that amount at 84 per cent, with £3.2bn of loans, investments and donations made.
This still represents strong growth in the sector, which is expected to continue, but it is likely that the number of funding platforms will fall, as the current number of about 100 has been described as ‘unsustainable’.