The Growth of Alternative Finance Solutions: UK Sees a Shift in Borrowing Habits
New figures released by the Finance and Leasing Association (FLA) have shown a large increase in the use of alternative finance solutions. The figures show that asset finance new business (primarily leasing and hire purchase) grew by 13% in November in comparison with the same period last year. This signifies that we’re currently seeing a shift in the borrowing habits of UK businesses. Let’s take a look at the details.
What is Asset Finance?
Asset finance (including leasing) allows firms to access equipment that they may otherwise be unable to afford. As a general rule, a company will pay a regular charge for the use of the asset over an agreed period of time. This then means that the company that requires the asset does not have to pay the full cost of buying an item outright.
As such, asset financing, or leasing, allows the customer to rent an item they’re unable to afford to buy. To facilitate the process, an asset finance company, such as Close Brothers Asset Finance, buys and owns the equipment required on behalf of the customer. The customer and the financer then agree a period of rental for the item.
So, with this in mind, what industries have we seen use asset finance as an alternate finance solution?
Machinery Finance Drives Growth
The growth appears to have been driven by two sectors in particular: plant finance and machinery finance. The plant finance sector reported that new business was up 18% on November 2016 in comparison with November 2015, while the machinery finance sector reported a 33% growth respectively. Commercial vehicle financing increased by 11% over the same period, also.
What Does This Show Us?
Overall, the figures show us that November was a particularly strong month for the asset finance market, with double digit growth seen across all of the main asset sectors.
However, that’s not all and these figures should not be viewed in isolation. This is because, in recent months, we have witnessed a recovery in new finance provided for construction and agricultural equipment in particular.
This shows us that UK businesses are currently seeking alternate financing solutions in order to drive business growth.
Why Are They Using Asset Finance?
For agricultural businesses in particular, as well as companies that deal in plant finance and machinery finance, it’s easy to see why asset finance is an attractive option. The equipment needed in these industries is incredibly expensive, and this financing method allows them to obtain assets that would be otherwise unaffordable or the acquisition could cause cash flow issues.
In addition to this, there are also a number of other advantages to a customer. Agreements can be tailored to each company’s needs, with flexibility given by providers on both the repayment schedule and the repayment terms. Plus, because repayment prices are fixed, businesses can manage their cash flow better, as they pay the same amount each month.
To conclude, British businesses are changing the way they finance their ventures, and we’ve seen a big jump in the businesses using asset finance over the past year. There are several advantages to using asset finance, so consider whether it could be right for your company.