Businesses replacing bank funding with leasing to invest in IT equipment
UK businesses are increasingly replacing bank loans with asset finance as their preferred way to fund investment in IT equipment, according to finance provider Syscap.
With fewer banks offering loans in the recession – lending to the private sector was down by 2.8 percent in the last 12 months according to the Bank of England – more companies are turning to asset finance.
Indeed, the FLA says asset finance used by businesses to acquire IT and software jumped 26 percent to £1.344bn in the last 12 months, up from £1.069bn last year.
Further, Syscap says the growth in asset finance, including leasing, to fund IT investment is far outpacing the overall growth in asset finance which grew by three percent over the same period.
Syscap chief executive Philip White says businesses have under-invested in IT equipment because of uncertainty in the economy and because bank funding for IT investment has been so hard to secure. “Some banks have also been unwilling to lend money for IT solutions because they no longer have the specialist skills required to understand the risk and long-term value involved in lending against IT assets,” he says.
“This lack of available bank liquidity for IT investment is even more worrying than the overall lack of business finance as IT investment is so vital in keeping UK businesses competitive on a global basis.”
White argues that a longer term rebalancing of business funding away from bank loans and towards asset finance could turn out to be positive. “Leasing allows a business to invest in IT without reducing its vital cash facilities and without necessarily adding to the level of debt that a business carries on its balance sheet,” he says. “Because leasing does not affect a business’ other credit lines, the company concerned has more scope to borrow money when they need it in the future and the opportunity to keep their hard-won cash reserves for a rainy day.”