uk news
Barclays cuts asset finance to SMEs
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arclays has stopped offering asset finance to firms with a turnover of less than £5 million a year, according to The Times. Give us news, not history, some might say! The pullout from the key area of small business lending comes in the wake of promises to the government that Barclays would boost loans to small firms. The Times reports that the decision means Barclays is, “potentially withdrawing credit to tens of thousands of business clients.” One such SME refused finance by Barclays is Reliant Colour Solutions, a business customer of Barclays for 29 years, owned by Ian Lewis. HSBC Holdings and Close Brothers have already presented offers to Lewis (and good for them), but when invited to submit their offer, Barclays declined.
When Barclays Corporate hit back they started by saying that Barclays Business discontinued asset finance products for SME customers last year, and not last week. Their defence is that the withdrawal of one product from the market cannot be viewed as depriving businesses access to credit when there are many other suitable alternatives available. In fact, they reminded us, half of unsecured lending to SMEs is for the purpose of purchasing an asset, and Barclays Business offers a number of alternative options to help them do this including term loans, overdrafts and EFG. Why does a bank like Barclays, once famous for Barclays Mercantile, feel so anti-leasing to SMEs? Basle rules usually show leasing to be better for a bank than the loan alternative because of the extra asset cover, and many European banks like Rabobank and ING take advantage of this efficiency in their cross-selling strategies. Informal feedback from some UK lessors, however, has pointed to them not having kept the historical data in their systems necessary to prove the lower LGDs. Or maybe it’s just too expensive to have people who understand leasing on the business finance teams? Whatever the reasons, it’s hardly worth speculating in the case of Barclays, whom the market knows have followed their own idiosyncratic asset finance policies over recent years.
March 2011 ■
www.leasingworld.co.uk
Philip White at Sycap comments, “We are witnessing a definite increase in demand for asset finance from small businesses and I would be surprised if Barclays were not seeing the same.”
Aldermore, the SME lender and lessor, says that small businesses which have asset finance applications turned down by Barclays should shop around rather than put their investment plans on hold. George Ashworth, Head of Asset Finance at Aldermore, said, “If correct, this news will be a bitter blow to the many thousands of SMEs who have been loyal Barclays customers for many years.
“Our advice for businesses is not to use an overdraft facility as a substitute for asset finance, because an overdraft can be withdrawn at very short notice. The best bet is to apply for a hire purchase or leasing facility designed specifically to suit investment needs. There are plenty of providers, Aldermore included, who are willing to help.” Aldermore’s asset finance division provided over £100 million of funding to small businesses in 2010, its first full year of operation, and continues to grow rapidly. Ashworth confirmed that whilst refusing asset finance to a particular industry is regrettably commonplace amongst big banks, deciding that they are going to stop providing asset finance to a business just because of its size is a very big step indeed.
Aldermore explains that this is an especially radical move as asset finance should be one of the lower risk products that a bank can offer to an SME. “The biggest banks now have so many business lines competing for limited capital,” Ashworth continued, “ that it is not surprising that their small business finance arms tend to suffer. Small business banking is of vital importance to the UK economy and more than 60 percent of SME’s currently use asset finance in some way. “SME’s are the engine for growth and regeneration in the beleaguered UK economy. This news underscores the reality that lending to small businesses by the large banks has been falling steadily by over £10 million per day for a considerable period.”
> IN BRIEF
FHBR 1.0 PERCENT FOR MARCH The Finance House Base Rate is 1.0 percent for March 2011, and at time of going to press looked likely to remain at 1.0 percent for April
2011.The rate provides member companies of the Finance & Leasing Association (“FLA”) with a base on which to calculate lending charges in certain industrial and commercial contracts where it is appropriate to vary rates during the period of the agreement. It is used, for example, in banking type transactions, as well as stocking loans to dealers. It is also widely used by non-FLA members.
LOMBARD TO SPONSOR REBUILDING UK MANUFACTURING CONFERENCE The event will debate the key measures needed to rebuild UK manufacturing with keynote speakers including business minister, Mark Prisk. Alex Baldock, Lombard managing director will chair a breakout session on capital investment at the summit on 2 March, 2010. Baldock, a graduate of Harvard Business School’s
Advanced
Management programme, will be joined by a raft of industry experts at the event including Andrew Reynolds Smith, executive director at GKN and John Hawksworth, economist at
PricewaterhouseCoopers.
Panelists will tackle topics ranging from SME innovation to the skills gap at the Manufacturing Summit. The event comes one year on from last year’s Manufacturing summit, which discussed the future of UK manufacturing,
and spearheaded a
campaign of key issues for the incoming government to address. The list of issues included freer access to finance, fairer energy prices, and more skilled workers. This year's summit will adopt the theme of rebuilding UK manufacturing. The event will be held at the IMechE headquarters at Birdcage Walk, Westminster, London (see Page 22 Events Calendar).
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