Asset FinAnce
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  • 1. Asset FinAnce 12 FEBRUARY 2009 & leAsing Leading the way out of the economic downturn DistributeD within the Daily telegraph. proDuceD anD publisheD by MeDiaplanet liMiteD who take sole responsibility for the contents
  • 2. 2 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Introduction The importance of asset finance Asset finance can be crucial to the running of a business, both in good times and in bad. Stephen Sklaroff, Director General of the Finance and Leasing Association, calls on the Government to provide the industry with greater support. optimistic. If asset finance ture, where over 40 per cent of busi- is properly supported by the nesses use leasing or hire purchase, Government – and only to the same and manufacturing, where a third extent as other types of business of businesses rely on asset finance. finance – it will enable providers Geographically, the highest use is to meet their customers’ needs. in Wales, the North East and the CONTENTS We will need some tweaks to the North West. And a recent study Business needs 4-5 existing government support by the Open University shows that schemes for liquidity and lending, asset finance is particularly attrac- Start-up 6 and to the corporate tax system. The tive to growing small businesses, Affect on the industry 8 Finance and Leasing Association is with five or more employees. in discussions with ministers and I am delighted to have been asked Industry advice 9 officials on how this might work. to introduce this supplement, be- Invoice finance 10 With such support available, the cause its publication shows that the asset finance industry will be ready leasing industry remains determined Asset based Asset finance – leasing and hire tions, many for business users. not only to help businesses to sur- to see its way through the difficulties lending 12-13 purchase, in this case – matters. It But 2009 is shaping up to be an vive in the downturn by conserving in the market, and to continue provi- matters because it helps businesses extraordinary year. Asset finance cash, but also to equip themselves ding an essential service to British Support industries 14 to invest. Over 750,000 businesses could, if we take the right decisions, for the eventual recovery. There is businesses in good times and bad. Software 15 use it, as well as many parts of the be at the core of business survival no better way of supporting reco- This determination is shown public sector. Asset finance allows recovery. But, in the absence of a very than through business invest- by the comprehensive revision we businesses to preserve their cash, modest level of government support ment. Indeed, when we do even- have recently undertaken of the which today can make the diffe- (already made available to other “ rence between survival and failure. forms of finance), asset finance will It helps businesses to obtain and not deliver the kind of economic use the equipment they really need. boost it otherwise might. Asset finance allows businesses A TITLE FROM MEDIAPLANET And, most of all, it saves money. ASSET FINANCE In good times, the use of asset fi- Lack of government support to preserve their cash, which today Project Manager: Mark Whistler nance grows, reflecting businesses’ At the time of writing, most govern- can make the difference between ” increasing need for equipment. And ment support for lending is only Editor: Virginia Blackburn Production Manager: in more difficult times, as busi- available to banks. Whether this is survival and failure Katherine Woodley nesses find themselves less able to aimed at making funds available to Design: Sherine Barnes fund investment from earnings or lend, or at making it more afforda- Prepress: Jez MacBean traditional bank lending, we would ble to lend to businesses teetering on tually see some ‘green shoots of FLA’s Business Finance Code, which Print: Telegraph Media Group Ltd expect the use of asset finance to the edge, it isn’t available for leasing. recovery’, it is new investment that applies to all asset finance arranged continue to grow. And this is despite the fact that lea- will determine how quickly growth through FLA members (90 per cent Mediaplanet is the leading sing is used by as many businesses returns. Asset finance allows that of the UK market). The code – sui- European publisher in providing Record breaking year as term bank loans. The obvious investment to be paid for over its tably modernised to take account high quality and in-depth analysis This was reflected in 2008, during issue of unfairness and an unlevel life, rather than in a lump sum up- of today’s markets and operating on topical industry and market which our members financed just playing-field isn’t the point. The real front, and that is going to be hugely environment – ensures that the issues, in print, online and broadcast. under £30 billion of new equip- problem is that for tens or hundreds attractive to many businesses. As- industry’s customers can rely on ment, a similar level to 2007, of thousands of businesses, it just set finance could end up providing getting a fair deal, and clear terms For more information about which was a record-breaking isn’t realistic to switch from leasing more than the current 30 per cent of and conditions. supplements in the daily press, year. This is just under 30 per to bank loans. The real risk - and FLA investment in new business equip- This supplement gives a picture please contact Simon Kenneally cent of all fixed capital invest- members tell me that this is already ment. of what those customers can expect Tel: 020 7563 8897 ment in the UK, other than real beginning to happen - is that some from this vital business sector. With simon.kenneally@mediaplanet.com property. FLA members provided businesses that would normally rely Growing potential the Government’s help, we can help www.mediaplanet.com £18 billion of finance to the motor on asset finance are simply unable to The potential for asset finance the UK economy through its current sector, and financed more than 50 obtain vital new equipment. to support businesses is already difficulties and lay the foundations per cent of all new car registra- But there is hope, and I am shown in sectors such as agricul- for solid growth in the years ahead.
  • 3. 3
  • 4. 4 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Business needs Boycott the banks for cheaper borrowing Banks are reluctant to lend and when they do, their charges can be stratospheric, so businesses wishing to grow are increasingly making use of asset finance instead. As the credit crunch descends into a lower rate than they would have real recession, companies in the UK to pay elsewhere. have seen their borrowing costs rise sharply – where, that is, they Strong continuing demand are still able to get credit at all. “Overall capital demand grew until According to a report by Sie- October last year, although the last mens Financial Services, quarter did see a reduction of lending published in Septem- in the market place,” says Jonathan drafts, that can prove very advan- ber 2008, just Andrew, CEO, Commercial Finance Unfreezing your capital tageous to the borrower. over a quar- Europe/Asia Pacific at Siemens Fi- It is also a way of releasing frozen And there are huge advantages ter of British nancial Services. “We are still see- capital from a business. Accor- for a firm of any size to use asset fi- firms, 25.3 ing strong continuing demand from ding to Siemens, billions of Euros, nance, according to Derren Sanders, per cent, have businesses, not least because asset both working capital and cash, head of Equipment Finance at HSBC seen their bor- finance is not cancellable, as an lies “frozen” in European and US Commercial Banking. “Instead of rowing costs overdraft is. It is a dependable and private sector businesses, with at borrowing against the future health rise since the predictable means of financing, as least E409 billion of that frozen of the business, it is borrowing crisis began long as you pay for it.” capital spent on acquiring machi- against the value of a business’s in the inter- Peter Ewen, managing director of nery, rather than hiring or leasing assets,” he says. “It leaves the in- national finan- Venture Finance plc, agrees. “The it through a finance plan. “That trinsic value of the business intact, cial markets in current shortage of funding is en- would free up working capital for which means that a company can 2007, while a couraging an increasing number of investment in growth strategies,” borrow against that, too.” further 15 per businesses to turn away from tra- says Jonathan. cent had been ditional finance such as overdrafts He believes that asset finance is Smoothing the balance sheet told that further and business loans towards more re- particularly attractive for compa- There are also balance sheet implica- interest rate rises sponsive and robust sources of fun- nies in the current business climate tions. “Leasing not only frees up ca- were on the way. The situation has the use of asset finance: at 22.4 per ding such as invoice and asset based because the finance can be secured pital at a time when the cost of funds almost certainly deteriorated since cent, almost twice the national ave- lending,” he says. “Cash is king in against an asset, rather than judged is increasing but removes heavily then. rage of 13.4 per cent. For, although these difficult times and invoice fi- on the obligor organisation’s cre- depreciating assets from the balance The worst hit sector of the market conditions in the asset finance nance allows businesses to access up dit status. Given the increasingly sheet,” says Alex Baldock, mana- was IT & Telecoms; conversely, market are difficult, it remains an to 95 per cent of the value of an in- onerous terms demanded from len- ging director at Lombard, the asset however, it was also IT & Telecoms exceedingly cost effective way for voice, as soon as it’s raised, enabling ders of more conventional types of finance arm of The Royal Bank of that was increasingly turning to companies to raise cash, usually at essential cashflow certainty.” financing such as loans and over- Scotland Group. “This is even more
  • 5. an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph 5 Business needs Asset FinAnce & leAsing important at the moment as residual financing can make sure their fun- finance methods provides you with the businesses, finance providers can flow, and to upgrade equipment values are in sharp decline, yet a ding is till in place. Take, for exam- use of the asset at a known budgetary often buy equipment for less and sell before it becomes obsolete. Leasing leasing company takes that growing ple, a haulier. There are still plenty cost, but with the ability to update and equipment when no longer needed can be particularly useful for small and unpredictable risk on behalf of of lorries moving goods around, and replace without a major call on your at a better price. These benefits are companies that may not be able its customers. By fixing the majo- if you buy a big lorry for £100,000, it cash reserves. Deals can be structured reflected in the rental payments. to obtain bank loans for essential rity of costs including maintenance will probably still be worth a lot. Ge- for the life cycle of what the asset is Leasing also makes it easier for equipment.” In today’s economic an operating lease or contract hire nerally, good and readily available needed for – for example - ‘working’ businesses to manage their cash climate, that makes particular sense. agreement, also provides assets such as greater budgetary cer- printing pres- There is a government-run outright, frees up the money to “ tainty at a time of increa- ses, construc- website that highlights the grow the business elsewhere. sing unknowns. In addi- tion it outsources much of Instead of borrowing against tion machi- nery or ‘fixed’ advantages of leasing and However, you will pay more HP: www.businesslink.gov. in the longer term and you may the basic administrative the future health of the business, it assets for lon- uk. It highlights the various never own the asset, although burden of managing a ger life requi- fleet, allowing staff to con- is borrowing against the value of a rements such advantages of buying outright, some arrangements allow you ” centrate on core business activities.” business’s assets as premises. Payments can leasing and HP. The first to buy it at the end of the of these options is a good lease. Another advantage is Asset finance is split into also be arran- idea if you have the cash that it allows you to update two areas: hiring and leasing, on the assets have not changed too much in ged to be lower in non-peak customer one hand, and invoice financing and value, but the underlying business times to be tailored to meet customer available or if you must own equipment without paying asset based lending on the other. The will not be worth as much. It’s the operation requirements.” the equipment, but large more. interests of the first are looked after difference between subjective and capital expenditure can Hire purchase, on the other by the Finance and Leasing Asso- objective: the value of the business is Advantages of leasing effect a company’s cash flow. hand, means that you will own ciation, and the second by the Asset subjective, whereas the value of the Some companies, of course, will hire or lease rather than buy. Quite apart Both HP and leasing allow the asset once payments have Based Finance Association, and both asset is objective.” are increasingly used by companies However, using asset finance also from the availability of credit, there a company to use an asset been made, and you can claim having trouble getting credit else- makes sense when your assets are lo- are cost implications, too. “Businesses over a fixed period in return capital allowances against tax where. sing value. “Given that assets when choose to lease assets because it saves for regular payments: if you from the beginning of the HP “If the intrinsic business is less you buy them immediately begin de- them money,” says Julian Rose, lease a piece of equipment, contract. The interest rate you profitable, then the likelihood is that preciating, funding out of cash flow head of asset finance at the Finance banks will lend less money,” says can make a real strain on your resour- and Leasing Association. “It is can then your monthly payments, pay will also probably be lower Derren Sanders. “However, a com- ces,” says Alex Baldock. “The flexibi- be cheaper to lease equipment than by definition smaller than than interest charged on a pany that makes use of proper asset lity of acquiring assets through asset buy outright. Compared to other the outlay needed to buy it loan or overdraft.
  • 6. 6 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Start-ups Starting from scratch related is taking advantage of the sinking pound. Rimmer knows of companies that export tooth- brushes, hair care and beauty pro- However, for firms that are wil- ling to go out and find the business, opportunities are still there. Edward Rimmer says that his firm, too, is This is not a good time to start a new company. But for those who do, asset ducts – some of the goods are both doing well. “We are not completely manufactured and sold outside the immune from current problems, but finance can be an ideal way to grow the business, providing funding from its UK and never actually touch these much more secure than the banks very first sale. shores, but the company itself is because even if the start-up goes out based in Britain – all of which are of business, we will still get our One of the worst hit sectors in the people who have become unemplo- nesses, as they are known: they doing well. Indeed, he money back,” he says. “And current economic climate is that yed use their redundancy payments prefer companies with a track re- also sees a difference in invoice financing can be in- of the fledgling company: a new to start out afresh.” cord, which is where we come in.” the attrition rates of valuable: I’ve seen start-ups business, with no track record, no Indeed, Bibby has seen a 25 per start-ups catering to go from sales of £100,000 in history and only an uncertain fu- Not rising from the ashes cent drop in the number of phoe- the UK and the inter- the first year to £3 million five ture at a time of national unrest, Edward Rimmer, UK and Irish chief nix/restart businesses it deals with national market: an export- years later. Another problem will find conventional credit hard executive of Bibby Financial Ser- and no immediate way out of the led business has a 25 per cent with conventional financing to come by even in a normal reces- vices, says that conditions are very economic gloom. better chance of survival is that bank loans “ sion, let alone one in which bank than its counterpart that re- don’t grow in line lending has all but dried up. Nor lies solely on the UK to pay with a company’s tur- are businesses that have had to re- A small number of start-ups are its bills. nover: at the end of structure themselves and start out afresh doing much better. Such is actually doing well at the moment: A better way to grow t h e loan period, you have to renegotiate. That is not the the gloom in some sectors that lack anything export or oil related is But most start-ups are fin- case with invoice financing: the facility grows alongside of funding is no longer a problem, ding traditional funding because no one wants to start a new taking advantage of the sinking very hard to come by. Only the company. Ultimately, it ” business to fund. Even the availa- bility of funding via asset finance pound the best business plans will be supported by the banks will be SMEs that kick start the economy and many will is not proving enough of a draw. and capital can be very be start-ups. This is a great “Certainly, we are seeing fewer difficult at the moment. “Traditi- The worst hit sectors, according difficult to find. However, opportunity for ABFA mem- start-ups at the moment,” says Peter onally, we’ve found start-ups are to Rimmer, are manufacturing, for those companies that bers.” Ewen, managing director of Venture companies that are starting com- followed by the service industry. are making a go of it in the Finance plc, which has between five pletely afresh, or are companies Construction and recruitment have current economic climate, Opportunity knocks and ten per cent of its business in that have failed in the past and also suffered, along with printing, invoice finance can be one of He also sees one silver li- start-ups. “Hopefully when the cre- after restructuring, are starting hauliers, wholesalers and engi- the best ways to grow the busi- ning to the current dark dit crunch eases, we will see more. again in a different guise,” he says. neers. However, a small number of ness. “New businesses can start clouds: because most Traditionally, that also happens to- “That has tailed off a lot. Banks start-ups are actually doing well at using their invoice finance faci- people will be too con- wards the end of a recession, when don’t like to support phoenix busi- the moment: anything export or oil lities almost immediately – as cerned about the current soon as they make a sale,” says economy to strike out for Ewen. “The business can also be themselves, there are more quite small, starting at a turnover opportunities for those who do. As of £150,000 to £200,000: special there is less competition both for products are available for that size the actual business and, indeed, of company. The whole point is for funding, any new company that we are able to take a view be- that really has spotted a gap in the cause we are funding the invoices market, done its homework and rather than funding the business got a good business plan together itself.” still stands a good chance of doing One of the biggest problems for well. start-ups is bad debt, and so Ewen “But this is not the time for spe- recommends using a factoring pro- culation,” Rimmer cautions. “A very duct with a credit insurance element. thorough knowledge of the market Firms like Venture can also support you are entering is advisable first: new businesses in other ways, too: it you need to know where the market is a member of the Small Firm Loan is and how to grow sales.” But the Guarantee scheme, a government- opportunities are out there for people backed scheme that allows viable prepared to do the legwork. In other businesses access to loans. words: fortune favours the brave.
  • 7. Alternative Funding Available to South East SMEs Sally Goodsell, CEO of Finance South East finance. While it’s still early days, initial funding for growing SMEs with a scalea- rying stages of growth, based within the (www.financesoutheast.com) looks at the successes highlight how publicly-financed ble business model. Bridging the gap bet- SEEDA region: latest funding options for SMEs. loans can work to help businesses through ween traditional debt and equity finance, this difficult time. The Transition Fund, an Accelerator loan works well in comple- • Accelerator Fund: a £10m mezzanine With difficult market conditions and a which is financed by SEEDA and mana- menting other funding sources, such as loan fund providing SMEs with an inno- dearth of credit many SMEs need capital ged by Finance South East, provides up to asset finance, to create a larger funding vative source of finance of up to £200,000, injections to maintain growth and retain £150,000 whilst requiring no capital or in- package. for a range of growth activities jobs. At Finance South East we specialise terest to be repaid until the end of the loan In the current economic crisis it is vital • South East Seed Fund: a £5m equity fund in funding ambitious businesses and are period. that those businesses with good prospects investing up to £250,000 on a matched- actively looking to support more enterpri- The Transition Fund has recently helped for growth and job creation can continue funding basis to SMEs, including univer- ses with high growth potential. Our funds Craufurd Technology Limited (CTL) take to access the funding that will enable them sity spin-ins/spin-outs offer an alternative source of finance to advantage of an export business opportu- to progress, so it is more important than • Commercialisation Fund: a £3m fund growing companies, particularly at a time nity despite tough conditions. When facing ever for us to support such enterprises. providing repayable finance of up to when traditional sources of credit are difficulties with its new export venture as Finance South East manages a number of £60,000 for proof-of-concept and com- running dry. In fact, our Government- the credit crunch caused financial delays funds available to ambitious businesses mercialisation activities financed funds have recently been incre- for its American customer, a £100,000 within the SEEDA region and we are still • Transition Fund: providing loans of up ased to help businesses affected by the Transition Fund loan allowed CTL to ge- very much open for business. to £150,000 to established SMEs recession. nerate six new jobs, as well as employment We are willing to take the risk of in- • South East Capital Alliance (SECA): a The newly established Transition Fund for other subcontractors in Britain. vesting in businesses that are willing to business angel network introducing high has been set-up in the South East speci- Our flagship Accelerator Fund, a mez- share that risk with us by taking a bold quality, investment ready companies to fically to support established SMEs who zanine loan fund which has been provi- and positive approach. potential investors from across the region are experiencing cash-flow problems as ding South East businesses with alterna- Finance South East managed funds are For more information visit a result of the current lack of commercial tive finance since 2004, continues to offer available to ambitious businesses at va- www.financesoutheast.com
  • 8. 8 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Affect on the industry The state of the market Although some leasing and hire purchase companies are finding the current climate challenging, many asset finance providers are saying there has never been a better time to lend. The credit crunch has had an ef- was also a nine per cent rise in the Of course, asset financiers are fect on the asset finance industry, quarter to the end of September, to less at risk if a business fails than as it has on every other part of the nearly £53 billion, against over £48 banks, because they are lending financial markets, and there have billion in the same quarter in 2007 against the assets of the business, ments two or three years ago with changed. We still have 6,200 UK certainly been some tales of doom and although growth is not expected not the business itself. Sharp also banks at unrealistically low rates clients running businesses from and gloom. Towards the end of last to continue at quite such a rate, neit- cautions that more clients of the and now can’t replace them, which £100,000 turnover to hundreds of year, ING Lease Deutschland clo- her is it expected to fall. industry will be failing over the means that they are looking to their millions and we are working in 16 sed down its forfeiting business, coming months and so asset finan- company assets to free up capital. countries outside the UK.” Universal Leasing wound down Signs of optimism ciers will have to work harder for Steve Box, managing director its Europe-wide leasing arm and Figures within the industry them- available business. But her tone is of HSBC Invoice Finance, says that Winning streak BMW temporarily suspended new selves, meanwhile, are far more op- not one of concern. his firm is also very much open for And, as the asset finance industry business at Alphera, its point of timistic. “The industry is moving business, even if it is being a little is so keen to emphasise, because of sale funding arm for non-BMW ve- as we expected, based on previous Funding outside the UK more cautious as to whom it will the way in which it provides fun- hicles, and Alphabet, its fleet ma- recessions,” says Kate Sharp, chief Justin Floyd, chairman and chief take on. “Usually, a recession is a ding, business failure is nothing nagement and leasing company. executive office of ABFA. “We are executive of the online software and good time for factoring companies,” like as catastrophic as it could be for And yet the picture for asset fi- he confirms. “Of course, the level the banks. As long as asset finance nanciers is by no means as gloomy “ as elsewhere, especially in the other side of the industry. According to the Asset Based Finance Association We are thriving as providers of (ABFA), in the 12 months to the end alternative finance: people go to of September 2008, the last period for which figures are available, the in- the bank first and when they have dustry had advanced over £154 bil- been turned down, they approach ” lion in domestic factoring, domestic thriving as hardware leasing specialist smart- invoice discounting, export providers of fundit.com, is also bullish. “There us factoring, ex- alternative is plenty of demand out there,” he port invoice f inance: says. “And while leasing companies of insolvencies is going up, and we companies themselves can get hold discounting people go that are owned by banks are strugg- do have to consider carefully if a of funding, and certainly on the in- and import to the bank ling, especially in the UK, we have business is likely to fail. The retail voice financing side that does not factoring, up first and a large funding network outside the sector is coming under a great deal appear to be a problem, they are 10 per cent from when they have UK, mainly in Europe and the Uni- of pressure, with household names able to grow their custom – just like the previous year’s f igure been turned down, they ap- ted States, which means we can meet like Woolworths failing, and even the businesses they support, in fact. of just over £140 billion. The only proach us. When the first tier closes, that demand.” He points out that those that survive are ordering There will be some winners from one of those areas to show any de- the second opens. We expect the in- many companies are also struggling less stock. But for clients of good the recession: the asset finance in- cline was domestic factoring. There dustry to continue to grow.” because they took at loan arrange- standing, our credit stance hasn’t dustry looks to be one.
  • 9. an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph 9 Industry advice Asset FinAnce & leAsing Ask the experts for tips to stay on top businesses to focus on customer re- biggest upheaval in this business for Jane Theobald, Recruitment Director, New Leaf Search tention and new business. a generation. Under the new regime, Make sure you sleep well at night, cars producing more than 160g/km of safe in the knowledge that your busi- CO2 will be subject to a writing-down ness is protected. Choose a financial allowance of only 10 per cent, while partner that offers bad debt protec- those producing 160g/km or less will tion in conjunction with your invoice qualify for a 20 per cent allowance. finance facility. This will protect and Leased cars in the higher category pay out against unpaid invoices due will have 15 per cent of the relevant to unforeseen customer insolvency. payments disallowed while those in “ Keep abreast of market develop- expanding despite the economy. Re- the lower category will have no disal- ments and strengthen your leasing main positive and focused and you lowance. The current economic climate has knowledge by referring to on and off- may be pleasantly surprised at the Choose This will make a massive resulted in large-scale redundancies line specialist publications such as outcome. difference. For example, a within the leasing sector. Our advice Leasing World and Leasing Life. a financial company could claim over £8500 for jobseekers attempting to secure a new role such challenging times is Cast your net wider; don’t just look at ‘the usual large players’ for pro- Peter Ewen, managing director of Venture Finance plc partner that on a sub-161g/km CO2 car - such as a 1.6-litre diesel-engined Focus simple. spective employment. On the plus offers bad debt - with a new value of £20,000 and Stay close to a reputable recruit- side, there are many smaller leasing 70 per cent depreciation after three ment company who can keep you companies that are faring well and protection in years. However, if the car produced informed of industry trends, provide conjunction 161g/km CO2 or more only just “ insightful career advice and present over £4800 could be claimed. you with suitable job opportunities. with your The relationship between CO2 Ensure they have strong credentials It’s vitally emissions and Vehicle Excise Duty in the asset finance and leasing sec- A business experiencing cashflow invoice finance levels is also being strengthened important ” tor. problems must align itself with an facility. from April, with differences of up If you’ve been made redundant, now is not the time to deliberate. If that your CV experienced and solid partner which takes the time to understand their to £250 per year on cars in the two categories. an opportunity arises whereby your is impeccable unique needs and delivers tailored Alex Baldock, managing director at A green vehicle policy will also skills match the job requirements and solutions. Invoice and asset based save you money. In simple terms, the employment proposition is viable, since you lending can offer flexible funding Lombard, the asset finance arm of The Royal Bank of Scotland Group the lower the CO2 emissions, the lo- seize it! If you don’t, somebody else will. Be aware of intense competition; only have for turnaround situations, often pro- viding the business in question with wer its whole-life cost will be, and more than ever it is the whole-life be decisive and quick to act. one chance to sufficient liquidity to executive re- cost - not list price or even monthly Prepare to be flexible and realis- structuring plans. rental – which matters. Despite the tic on salary expectations - but go sell yourself Reducing overheads is crucial in premiums on list price and the cost the extra mile in presenting a qua- lity CV and preparing for interviews to make the surviving an economic downturn. Factoring is often a cost-effective of the fuel, dieselmodels are usu- ally more cost-effective to run than thoroughly. It’s vitally important that interview option for small or start-up busi- petrol equivalents as they not only ” your CV is impeccable since you only nesses with turnovers of £100,000 Understand forthcoming legisla- produce less CO2 but their fuel eco- have one chance to sell yourself to shortlist. plus, removing the need for in- tion on your leasing arrangements. nomy is so superior and they have make the interview shortlist. house credit resource and allowing April’s tax changes represent the better residual values. Richmond Consulting Group is one of the leading providers of specialist consultancy to the finance and leasing industry. We operate globally from offices in the UK and Europe, employing only professionals with direct finance and leasing industry experience, we help our clients build a solid foundation for their business. Strategic Consultancy Systems Consultancy Operational Consultancy Financial Consultancy Human Capital Solutions To find out how the Richmond Consulting Group can help your business contact us at the following: One Heddon Street, Mayfair, London, W1B 4BD Tel: +44 (0) 20 7470 7172 Email: info@richmondgrp.com Web: www.richmondgrp.com
  • 10. 10 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Invoice finance Fitting the bill of approved debts as soon as they receive the invoice, usually, again, between 80 to 85 per cent. Unlike an invoice discounter, the factor will take over the administration, namely In a sluggish economic climate, cash flow can credit management and collections work, and the fee will thus be higher: quickly dry up. Invoice financing is an ideal way typically up to three per cent of to bridge the gap between an invoice going out turnover. and payment coming in. Cutting costs AccordingtoKateSharp,chiefexecutive Invoice finance is a highly practi- the bill is paid, the client receives the officer of the Asset Based Finance cal way for companies to raise cash, outstanding 15 per cent. Sometimes Association (ABFA), outsourcing this particularly in the current economic the financier puts some element of work can be extremely cost effective climate. According to research car- bad debt protection into the service, for a small firm. “Take the example of a how a business is doing than a bank carries with it in-built risk manage- ried out by HSBC Commercial Ban- while the charges themselves might recruitment company,” she says. “You offering an overdraft or loan facilities ment even if no factor is used, in that king, SMEs are being hit by a pincer constitute either a flat fee or a set up in a rented office with a couple would have. “Banks look at the the invoice discounter will still bring movement of suppliers billing more percentage of turnover: because the of desks, sales and contracts, and have historic performance of a business, to a company’s attention invoices quickly, and fewer companies paying which means that the information that have not been paid. It can be a “ within agreed payment terms: 18 per released by a company’s management signal of a potential problem before cent of small businesses surveyed are is going to be at least three months it actually occurs. receiving bills faster, and 20 per cent Banks look at the historic out of date,” he says. “It is looking “Cash is king and that is more cru- say fewer companies are paying fast. This is a problem that can be allevia- performance of a business, which backwards to fund a company going forward. However, a factor or invoice cial than ever,” says Jeff Longhurst, managing director of London-based ted by invoice financing, and yet ac- cording to HSBC, 40 per cent of the means that the information released provider will see invoices on a daily basis, and can put a value on the Eurofactor. “The lack of available credit cover means that businesses 569 SMEs surveyed are raiding their by a company’s management is business as it is today.” need cash more than ever to pay savings and nearly a quarter relying going to be at least three months A better way to borrow for supplies, because their suppliers ” on overdrafts. This is not the best use won‘t give them credit. That, in of cash. out of date Fundamentally, however, invoice financing boils down to maintai- turn, is because, is because insurers won‘t provide the finance. On top Flexible options ning the lifeblood of a company: of that, the price of money has gone Invoice financing involves two types client is still responsible for collecting staff who want paying at the end of cash flow. “One of the most impor- up, again leading to a requirement of lending: invoice discounting and the invoice, the fee is usually in basis every week. There is a huge gap in tant considerations for firms is to for cash.” factoring, with about 55 factoring points. your cash flow, banks won’t lend to you put cash flow first, profit second and Nor does this just apply to SMEs. houses in the UK. In the first case, Factoring, which is sometimes because it’s too risky, but if you receive turnover last,” says Martin Morrin, “The biggest change over the last the client sells the company’s book called Full Service Factoring, is a 85 per cent of your invoice on day two managing director of RBS Invoice year has been the nature of the busi- of invoices to a financier for its face similar way to raise money, but with of the week and don’t have to pay it out Finance. The amount a company ness looking for invoice finance,” value and receives, typically, 80 - 85 additional services added in. It is until day six, that is covering your cash can raise through invoice financing Longhurst says. We are now tal- per cent of the monies owed, less the especially appropriate for businesses flow requirement. It works perfectly.” as opposed to conventional borrow- king to investment grade compa- financier’s charges. This transaction that have slow paying customers, Tim Corbett is the managing ing is bigger, too: up to 85 per cent nies, which we wouldn‘t have done a is not disclosed to the original a shortage of working capital and director of Fortis Commercial Finance of the outstanding monies against year ago. There has been a complete cutsomer, but the money due goes might need protection against Ltd and the chairman of ABFA. He an overdraft that would probably be change of perception about factoring into a bank account administered bad debt. In this case, the factor points out that invoice financing a maximum of 50 per cent of what over the last few years: it is a product by the invoice discounter, and when agrees to pay an agreed percentage gives the provider a far clearer idea of is owed. This type of financing also that has finally come of age.”
  • 11. Truly Client-Centric Asset Based Finance Solutions selling to blue-chip clients. We our overdraft and kept a medium our service would require a more “As an equity backed owner were looking for the best possible term loan in place. Housebuilders detailed understanding on behalf managed commercial finance deal and met with Centric following are prone to hang onto cash for as of the lender concerned. Centric company, we are ideally positioned a referral from another lender. long as they can in this market and delivered on all fronts.” to help those companies which Centric was very responsive and consequently debtor days drift out. act decisively on opportunities the time from enquiry to delivery Centric pressed the button to offer Certainty of Funding so that they may emerge stronger was just ten days. I would have to a facility that matches our working Tim Hawkins, Commercial Director and fitter. The directors of Centric say that Centric is in tune with the capital needs perfectly.” of Centric Commercial Finance Commercial Finance will continue way business is conducted today. comments: “For many businesses to support firms in the tough times Years ago you could visit your bank Stortext Document Solutions an economic downturn represents and the good by delivering the manager, today you can’t get in Limited – Scanning Success a challenging time: for some it will quantum and certainty of funding, ▲G Tim Hawkins touch with your High Street bank at StortextFM is one of Europe’s most present new opportunities.” together with the creativity and The current market conditions have all. Now, conventional banking has successful specialist document speed of response that each client’s clearly made it very challenging for had its day, Centric has shown the processors, with scanning, data individual business situation SME and mid-market companies way forward for business.” capture, document hosting demands.” to access financing. Asset Based and processing operations Lending offers significantly higher AJ Moran - Smooth Operators situated at three UK sites, tim Hawkins levels of working capital than Centric provided a refinancing enhanced by offshore centric commercial Finance traditional facilities allow. package for AJ Moran Ltd, a facilities. leading dry lining and plastering They prepare, attach bar studio 4 Power Road studios Gourmet Candy – A Sweet Deal contractor, operating for close to codes and scan documents 114 Power Road chiswick Gourmet Candy offers a range of 50 years. The company provides which they then host for london W4 5PY unique and exclusive product lines various plastering related services their customers to access t: +44 (0) 20 8747 2300 from St. Valentines Liquorice to to housebuilders across the over the Internet. W: www.centriccF.com Jessica Walker and Mr Stanleys. Thames Valley. StortextFM’s Financial tim.hawkins@centriccF.com Recently, Centric structured a The senior management team Director, John Williams said: confidential invoice discounting is led by managing director Peter “We were referred to Centric facility for the fine confectionery Melton, who commented: “Centric by our venture capital manufacturer. Paul Hillman, are clever guys. I felt that they investors. The confidential managing director of Gourmet worked hard to understand our invoice discounting facility Candy, comments: “Confidential business and stepped in quickly has enabled us to plan and Invoice Discounting suits the to structure a confidential invoice manage our working capital profile of a growing business discounting facility that reduced more easily. We knew that
  • 12. 12 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Asset based lending money that is particularly suited to classes of industry that are as- set rich, such as manufacturing and less so to an asset-light com- pany, say, in the distribution sec- tor. Except in the case of invoice financing, which works across the board, ABL also tends to be sui- ted to more established companies with assets to borrow against: a new company would not necessa- rily own outright the equipment against which it could borrow, not least as its requirement would be met through leasing or HP. A wide application “Invoice finance is suited to in- dustries that sell on credit terms to other businesses and invoice re- trospectively,” says Sharp. “Asset based lending has a wider applica- tion and is also suitable for retail businesses. Asset based finance Making the most of your assets operates across many sectors, for example textiles, recruitment, printing, packaging, light engi- neering and manufacturing sec- tors.” As more conventional forms of borrowing are increasingly hard to come by, asset based lending is coming There are no hard and fast in to its own. Both finance providers and customers are benefitting from the trend. rules, but in general terms, ABL is appropriate for companies with a The economic downturn is Asset based lending frees up cash corporations with capital tied up growth can immediately be taken turn over of £2 million upwards. causing a great deal of upheaval with which to finance change: at in assets, an asset based lending advantage of and stock and machi- ABL also offers a greater degree in every market, but it is providing its simplest, it is a loan secured by solution may be more appropriate,” nery value that would otherwise of certainty than more conventio- opportunities, as well as problems, an asset, which can be anything says Kate Sharp, chief executive have little impact on your business nal lending, such as an overdraft, with some companies seeing this as from plant to machinery, the of the Asset Based Finance Asso- finance requirements can be unlo- which can be withdrawn at any a time for change. And whether that invoice book and even – albeit very ciation. “This form of funding is cked. Therefore organisations can time, as it runs to a fixed term. dynamic is a company growing, rarely – branding. It is built for increasingly available and of- utilise property value without sa- There are advantages for fi- sliding, changing ownership or companies which need to refinance fers businesses a way of releasing crificing ownership.” nance companies to lend in this management or, most pertinently, themselves, while the loan taken funds into the business, which Typically, a company can raise way, too. “If you are lending via whether it is a company in the out typically lasts three to five would otherwise be inaccessible. about 60 per cent of a building’s an ABL structure, you require throws of a management buyout, years. With this type of funding an or- value (down from about 70 per less capital than an unsecured the company needs to raise cash ganisation can unlock vast sums cent a year ago) and 70 to 80 per or corporate loan, which means and this is where asset based An ideal solution of cash that have been invested in cent of the value of plant and ma- your return on capital is greater,” lending can provide a solution. “For larger, more multi-national a business infrastructure. Sales chinery. It is a method of raising says Paul Beveridge, managing
  • 13. an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph 13 Asset based lending Asset FinAnce & leAsing director of KBC Business Capital. then it will be a weekly or monthly supplying chemicals to the farming this is a distinct advantage.” “However, although this is seen basis. On top of that, the lender industry, might look for an alterna- Asset based lending is also as a newer area, in reality we are will instigate quarterly or three tive to ABL because cash flow will beneficial to a company for a number lending in a more old fashioned times a year audits. However, be- differ wildly throughout the year – of other reasons. For a start, you way than banks have been doing cause of the intensity of this ana- and many companies find that while can’t over- leverage: if an asset lately.” lysis, the ABL can lend a higher ABL helps them through a specific is worth £300,000, you can’t amount than the normal banking period of change, they might want borrow £500,000 against An intense relationship facility would have been able to.” to revert to other types of financing it. Secondly, it Beveridge describes the reason The downside, for the lender, is the after it. provides a for this as the “intense” nature amount of work involved: because r e volv i ng of the relationship between ABL of the intensity of the scrutiny, it Ideal arrangement c r e d i t provider and client. “In order to needs more members of staff. But in many circumstances it is f ac i l it y. provide the loan, the asset lender Asset based finance in its current ideal. “The use of asset based len- T hirdly, needs a constant and current flow form has been around for at least 40 ding is increasingly widespread it is often of information about the asset on years, but it is over the last 15 that in MBO deals, largely because a cheaper than an structured asset based finance pa- unsecured loan ckage can provide more than just or line of credit, “ the funds needed to complete the for the simple This form of funding is initial buy-out transaction,” says Kate Sharp. “As well as the up-front reason that the lender can seize increasingly available and offers funding, it can also provide a wor- the piece of equipment businesses a way of releasing funds king capital line to supply compa- nies with sufficient working capital linkage between asset based finance and corporate assets makes it that has been borrowed against if the borrower defaults. into the business, which would after the transaction has been com- ideal for growing companies as And, ironically, the credit crunch ” pleted.” the funding grows in line with might actually benefit ABL in the otherwise be inaccessible And, in the credit crunch, this the business. Unlike some other longer term. “We are seeing better can be a very good way to borrow. traditional lending sources, asset- quality corporate transactions than “Companies are examining their based lenders look at the long-term we have done in a number of years,” which it is based,” he says. “If a it entered the mainstream, growing own balance sheets more closely goal of the business and provide says Paul Beveridge. In other words, debtor is using invoice financing at over 10 per cent a year every year to identify where capital is tied support through the company’s the traditional lenders have been or factoring, the information flow for the last decade. It is not right up and how they can become more growth and expansion. At a time pushing companies into the arms will take place on a daily or wee- for every asset-rich company – a intelligent in the use of their assets,” when the availability of finance of ABLs. And there, post-credit kly basis. If stock is the security, seasonal business, for example, one Sharp continues. “The dynamic reduces on an almost daily basis crunch, they may stay.
  • 14. 14 an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph Asset FinAnce & leAsing Support industries Legal eagles who keep asset financiers flying high Asset financiers need to rely on professionals in other fields to keep their businesses running smoothly, among them lawyers and document service companies. They can be essential to a financier’s health. It is not just asset financiers who ween. If you have small transac- in the field is DLA Piper, the fifth at the end of a lease term and so sure good processes are in place.” work in asset finance: there is tions involving someone buying largest legal practice globally by may prove to be less attractive. The company has five major a huge supporting network of a photocopier or computer equip- turnover. It, too, deals in the major Similarly, you might find a piece clients in the industry and says other businesses as well. In the ment, there will often be standard manufacturing industries, although of equipment has been integrated it can save between 30 and 50 UK there are between eight and documentation and legal advice Graham Tyler, head of asset finance at into another piece of equipment, per cent of invoice processing ten giant City legal firms who are won’t be needed. But further up the firm, says he is seeing increasing such as a GPS system and so the costs. “Currently, when most active in the area: the one that has the scale, where the assets are inquiries from other sectors such as lessor will accept that the chan- companies generate invoices, the biggest team is Norton Rose, greater and the transactions more technology, for example, to finance ces of recovering the asset may the system is transaction-based which has more than 100 lawyers complex, you need tailored do- leasing equipment. “We explain to be slight. These factors, coupled rather than rules-based,” Chris working on asset finance and in cuments and at that point clients clients with no knowledge of the with the likely location of the as- Haden continues. “Our software 2008 dealt with a transaction should be taking advice.” industry how a finance lease or an set throughout the term, are key can transfer this onto a rules- aggregate value of $20 billion operating lease works,” he says. “We when a lessor is pricing a deal.” based system.” At its simplest, for shipping alone. Most of the Tax advice is crucial are also able to discuss with clients this means that, for example, the deals are large ticket items of £50 The most obvious role of a legal whether the transaction should be Keeping paperwork tidy system can differentiate between million or more. advisor is drafting the contract, on or off balance sheet, and make As the industry has become a good and bad credit risk and in “The role of the lawyer depends but the lawyer will also offer tax suggestions to them as to who increasingly complex, other service the latter case, allow the supplier on which part of the market you’re advice. Deals are, indeed, often might be interested in the proposed providers have grown up, too. One to reclaim the goods even before talking about,” says Alistair Mac- underpinned by their tax implica- transaction. of these is Formscan, a document the invoice has been issued. Apart Rae, a partner in the banking tions both for the financier and the “As a general concept when services company, which works with from saving money pursuing a team at Norton Rose. “At its simp- client company and if the transac- considering a deal lessors and fi- invoice financiers. “We provide a debt that will never be repaid, it lest, you have something like car tion doesn’t attract the tax treat- nanciers are going to be looking range of services around business also impacts reputational costs. finance, hire purchase, leasing ment the financier was hoping for, at the lessee’s credit and the un- documents, including storing, “It makes the business look good,” and so on and at the other end you then the increased costs will be derlying asset and price the deal scanning, changing them to a he explains. “If a company gets have airlines wanting to finance passed to the customer, who must accordingly. For example, in the different format and managing them a bad reputation, it makes an the purchase of an aircraft. And be made aware of that. context of aviation, some air- online,” says managing director underwriter lose confidence – and there’s the whole spectrum in bet- Another of the major players craft are not so easily remarketed Chris Haden. “Primarily, we make so it ends up paying more in fees.” Open marketplace for business finance With headlines about ‘bank bailouts’ and competitive advantage. And in a market interest rates and market forecasts are right price. By matching 100 percent the businesses going bust due to the inability to where even the smallest advantage revised. Being able to quickly, transpa- audited credit score of the business with the quickly access critical business financing, could make the all important difference, rently and cost effectively qualify the financing rules of the funder, marketplaces it’s easy to believe that the end of the world financing is enabling businesses to invest funding requests, process them and fulfil like Smartfundit.com are taking the cost, is nigh and business financing is a thing in the future without the need for capital them is vital in such a fluid market. complexity and time out of the end-to-end of the past. However, the reality is that expenditure. The ability to secure funding with financing process. businesses still need financing and funders The dynamic nature of the market de- the widest possible choice, ensuring the It would be too easy to react to the still need to close the deals to survive. The mands flexible funding and the need to best possible match to all stakeholders’ current circumstances, and ring the bell challenge in today’s economic environment think out of the box. Access to capital is requirements is essential. In doing so, if of change for the sake of it. But business is how to connect the two. the life-blood of every business, and with the funder can also mitigate marketing financing needs to learn from the lessons Financing is emerging as a key vehicle no sign of the credit crunch softening in cost, reduce operational costs, maintain in other areas of financial services, and for businesses looking to not only survive the near future, speed to capital is now customer relationships then some life can embrace evolving technologies in the the recession, but to emerge stronger. key. be injected back into the market. way business is done. While not a case Investment in information technology, Funders are undoubtedly more risk Open online business finance for revolution, there certainly needs to be for example, can not only cut costs out averse, not only insisting on more strin- marketplaces are enabling funders to some rapid evolution, and these troubled of a business by streamlining business gent credit criteria, but in many cases re-enter the market and reach the right financial times may be the prompt it needs. processes, but also give a business a real changing the offers on a weekly basis as customers with the right products at the Suki Gallagher, COO of Smartfundit.com
  • 15. an inDepenDent suppleMent froM MeDiaplanet about asset finance & leasing, DistributeD within the Daily telegraph 15 Software Asset FinAnce & leAsing Taking a hard look at the future for software Software providers are crucial to the industry. But for now most of them are in a downbeat mode. “ As the credit crunch has taken its toll on some areas of the asset fi- nance field, so its supporting in- The change in the rate of VAT dustries have been affected, none can’t get funds and if funding isn’t more so than software. Indeed, has not helped at all, not least in place, they can’t do business. New sides of the asset finance industry. She says that market conditions are given that software, by its very nature, reflects exactly what is because no one knows what it will business has curtailed quite drama- tically over the last six months and more difficult than she has ever seen before, and that government initia- happening in a company, it was be at the end of the year. Will we are finding it is only the occasi- tives have in some cases done more software experts who were aware onal niche player that thinks diffe- harm than good. “Take the change before almost anyone what was it go up to 18 per cent? Why rently.” in the rate of VAT,” she says. “It has happening in their field. And, as with so many practiti- would someone want to take out There are other problems that have had an effect on the mar- not helped at all, not least because no one knows what it will be at the oners in asset finance, their expe- an HP contract with that kind of ket, too, not least oversupply. “For end of the year. Will it go up to 18 ” riences vary very widely depending many years, we worked with motor per cent? Why would someone want on whether they are working on the uncertainty ahead? finance and asset finance until the to take out an HP contract with that HP and leasing or invoice finance early years of this millennium,” kind of uncertainty ahead?” side. But while the vast majority says Ian Wilson, sales director of Towquest is currently providing are aware that times have been dif- term lull while the financial world and safety reasons, and lessors are Pancredit. “But we found there its clients with the opportunities ficult, many are also beginning to sorts itself out.” now actually able to command hig- were far too many vendors in that for cost savings by giving them a see light ahead. He sees two areas of strength: the her rates than they did a year ago, sector, and so we made a conscious completely managed service, so that growth in short term low value len- because other forms of funding have decision not to spread ourselves too they don’t have to spend anything Short term lull? ding and increased opportunities dried up.” thinly and moved into consumer on software. “They might buy it ou- “We became very concerned last for captive finance houses and their lending instead. The largest pipe- tright when the upturn comes,” she August when clients began to parent manufacturers. “The first, Lack of funds line we see now is unsecured debt, says. And the company is seeing pull back on their development personal loans, may not be a form of Ian Charik, director of Copernicus, and I will be very surprised if, when some interest in its products from programmes,” says Michael Breach, leasing, but it is still funding and de- which sells software to the HP and we see an upturn, all the vendors outside the UK, including countries managing director of Oyster Bay mand is there,” he says. “As for cap- leasing side of the asset finance out there at the moment will have such as Dubai, the Netherlands and Systems, which supplies software tive lessors, initially sales of capital industry in the United Kingdom, survived.” Italy. “Our systems are always deve- to the asset finance industry. equipment hit the floor. We under- United States, China and Africa, is loping and we are helping customers “There was a dramatic drop in stand that sales of new construction considerably less optimistic. “I’m No Government help with different ways to maximise new business and add on business. equipment are one-fifth of what they surprised anyone has a positive Meave Cray is the managing director profit and minimise risk,” she says. However, we do think the finance were a year ago. But companies do point of view,” he says. “The broker of Towquest Ltd, a software company “But at the moment I see no shift in market is there. This is a short have to renew equipment for health market is in a very bad way: they set up 20 years ago to deal with all the economic gloom at all.”