ASSET FINANCEdoc.mediaplanet.com/all_projects/6111.pdf · “Asset-based ﬁ nance is a package of...

ASSET FINANCE

Unlocking finance: How asset fi nance could help business fi nd the way out of the recession

FIND YOUR WAY TO

EFFICIENT FUNDING

Be in the knowUnderstand the types of fi nance and how they work for you

Work your assetsHow utilising them can help your business turn around

4TIPS TO

GET THE MOST FROM YOUR BUSINESS

PHOTO: ANDRESR /SHUTTERSTOCK

No.3/Dec ’10AN INDEPENDENT SUPPLEMENT DISTRIBUTED WITHIN THE SATURDAY TELEGRAPH

2 · DECEMBER 2010 AN INDEPENDENT SUPPLEMENT DISTRIBUTED WITHIN THE SATURDAY TELEGRAPH

Making good use of your assets

Times may have been tough in the asset finance industry, but both sides of the business are now seeing clear indications of recovery

Asset finance has come of age. While the industry has undergone a dif-ficult three years since the global economic crisis be-

gan, in recent months there has been both a recovery in the market, as well as an increased understanding of how companies can use asset finance. “We are to some degree a barometer of small to medium sized business-es,” says Kate Sharp, chief executive officer of the Asset Based Finance As-sociation. “Over the whole of 2009, we saw an eight per cent drop in turno-ver, the first fall in 50 years. However, we are also the first market to come out of recession. In the first half of 2010, there has been a 10 per cent rise in asset-based financing. Previously, companies weren’t taking out mon-ey as they had been previously, but now they are coming back.”

The ABFA figures are born out by the quarterly Bibby Financial Serv-ices Business Factors Index, which is assimilated from data from the

company’s 3,000-strong client base and Omnibus research conducted by Continental Research among 300 small organisations. According to Bibby, business turnover in the third quarter of 2010 reached its high-est level since the fourth quarter of 2007, when the economic crisis be-gan. The Index stood at 100.6, up 11.4 per cent from a year ago, with an im-provement in all sectors, especial-ly manufacturing. “We have seen a sizeable turnaround in the last sev-en to eight months,” says Andy Tait, executive director North, for Bib-by. “Part of this is also due to the re-cruitment industry, which uses our services a lot. We have seen a real re-vival in that sector.”

George Ashworth is the vice chair-man of the asset finance division at the Finance & Leasing Association and head of asset finance at Alder-more. He, too, saw signs of decreased turnover and, more recently, recovery. “Since 2007, times have been tough,” he says. “Normal replacement cycles on equipment have been extended, as there hasn’t been as much business

around, and that is despite the fact that a lot of capacity has left the busi-ness as some companies have closed down. Manufacturers have deferred replacing cars, plant and machinery, although the difference from pre-vious downturns is that this reces-sion has been bank-led. Not only was there a fall in demand, but a reduced supply side to meet it.”

However, here, too, there has been an upturn, not least because replace-ment equipment cannot be post-poned forever. Ashworth has seen a recent rise in inquiries, especially in handling and construction equip-ment. “There has been a multitude of applications, especially for exca-vators, loaders, dump trucks and mo-bile cranes,” he says.

But both sides of the asset finance have had to cope with a further prob-lem: one of perception. “We used to have the stigma of being the lender of last resort,” says Kate Sharp. But that is beginning to go. “We can approach funding decisions in different ways,” she says. “Where banks say ‘no’, we can still say, ‘yes.’”

“If your company is rich in assets then it can provide funding for, say, a new logo, taking on a competitor or turning the business around”

Mike SymesUse your assets

WE RECOMMEND

PAGE 6

Driving away p. 101. Could leasing your fleet be a more cost effective way than purchasing?

Ask the experts p. 142. How has the recent economic downturn affected the asset finance industry?

ASSET FINANCE, 3RD EDITION, DECEMBER 2010

Managing Director: Willem De GeerEditorial Manager: Katherine WoodleySales Manager: Simon Kenneally

Responsible for this issueProject Manager: Dominic WebberPhone: 0207 665 4409E-mail: [email protected]

Distributed with: The Daily Telegraph Print: The Daily Telegraph

Mediaplanet contact information: Phone: 0207 665 4400Fax: 0207 665 4419E-mail: [email protected]

We make our readers succeed!

Kate SharpABFA

Asset-based lending is partic-ularly suitable for small and

medium sized enterprises. ABFA has over 43,000 members, and yet out of these, only 219 were turning over more than £100 million. Main-stream banks have now also en-tered the ABL market and it is a suitable form of funding for start-up companies, as well as compa-nies that are expanding rapidly or are planning management buy-outs or mergers and acquisitions. It can provide an immediate injec-tion of capital into a business plan.

WHO IS ASSET BASED LENDING SUITABLE FOR?

CHALLENGES

Andy TaitBibby


Question: Are you still uncertain what asset fi nance means and how it can work for your company?

Answer: If you take specialist advice, you could gain access to increased credit, as well as cut your funding costs

“Asset-based fi nance is a package of funding based against a companies’ assets, including stock, brand, in-voices and in some cases, goodwill,” says Kate Sharp, chief executive of-fi cer of the Asset Based Finance As-sociation. “The skill in asset based funding lies in looking at a whole balance sheet and working out the nature of the funding requirement. If you had a brand as big as Coca-Co-la, you could even use the brand to fi nd value.”

At its simplest, asset-based fi nance boils down to two types of lending: invoice discounting and factoring, all based on the same precepts with increased layers of service depend-ing upon the product the client has chosen. At its simplest, the company sells its book of invoices to a special-ist fi nance house and is paid, usually, about 80 to 85 per cent of the amount

outstanding, minus the charges made by the lender (at this level, usu-ally a few basis points.)

The clients to whom the invoic-es have been sent do not know that their ownership is now in a third party’s hands, but the money raised goes into a special account opened by the invoice discounter. When the bill is ultimately paid, the cli-ent gets the remaining 15 to 20 per cent of the monies outstanding. Var-ious levels of further service can be built into this. One of the biggest problems companies face, particu-larly in diffi cult economic times, is bad debt: some protection against this can be built into the scheme, but at this level the original compa-ny remains responsible for pursuing the invoice. Payments can be varied, made either as a percentage of turn-over or a fl at fee.

For companies who want more,

the appropriate product is factoring, sometimes called Full Service Fac-toring. The idea behind it is exactly the same, but with a greater service level thrown in. Again, the factor will pay a percentage of the outstanding invoices, usually 80 to 85 per cent, but in this case it will take over the ongoing administration, most im-portantly pursuing the outstand-ing debt. This is called credit man-agement and collections work and again usually provides some degree of protection against bad debt. By taking over the administration, the factor allows the original company to get on with raising new business, but this is a more expensive option, usually about three per cent.

What this does, and the reason that it enables factors to provide funding where banks cannot, is that it gives the lender a totally up-to-date insight into a company’s fi nan-cial health. Banks provide loans and overdrafts on the basis of historic in-formation, but factors provide fund-ing against assets, including what is owed to a company at any one time.

Kate SharpChief executive offi cer of the Asset Based Finance Association

THE CINDERELLA OF FINANCE STEPS OUT OF THE SHADOWS

VIRGINIA BLACKBURN

[email protected]

NEWS

GE Capital

Putting ourCapital to work

Alcan Engineered ProductsPan European Receivables Financing and US ABL$500 millionStructured Working Capital Facility

Jaguar LandroverCross Border Inventory Financing $250 millionStructured Working Capital Facility

UNDERSTAND ASSET FINANCE

1TIP

DECEMBER 2010 · 5AN INDEPENDENT SUPPLEMENT DISTRIBUTED WITHIN THE SATURDAY TELEGRAPH

BMB Clothing LtdCID & Inventory£17 millionRefinance

B&B Attachments LtdCID & Credit Protection£2 millionRefinance

Caval LtdCID & Credit Protection£1.25 millionRefinance

Visual Foods LtdCID & Inventory£4.75 millionTransactional

Scot Group LtdCID & Inventory£15 millionRefinance

Nufarm UKCID£35 millionRefinance

From refinancing and restructuringto buy-outs and acquisitions,whether a small domestictransaction or a large structuredcross border transaction, we canhelp you unlock the fundingpotential in your assets.

To see how GE Capital's ABLexpertise can help companies makethe most of their opportunities,contact Matt Goodley on 020 7302 6300 or visitwww.gebusinessfinance.co.uk

When is it best to use invoice discounting instead of a loan?- Invoice discounting is always preferable to a loan when the re-quirement is a cashflow/work-ing capital requirement. It is dif-ficult to predict cashflow as busi-ness performance can turn out very different from what was fore-cast and a company’s needs can al-ter dramatically over time. When this manifests as increased sales the flexibility offered by invoice finance cannot be beaten. As a revolving facility directly relat-ed to business performance in-voice finance is the ideal cashflow solution.

What is the best way to negotiate an invoice discounting deal?- It is advisable to speak with sev-eral financiers and see what they are prepared to offer, compare both the service and the price be-fore selecting your provider. It is important to recognise that your invoice finance provider will have a closer relationship with you

than would be normal under other forms of bank finance.

What is the best way to choose an ABL provider? - Attention needs to be paid to which provider you are going to approach and potentially use. This is an ideal time to talk to your accountants. Many Asset Based Lending deals are brokered through an accountant or an in-termediary, and many organisa-tions will already have established relationships with several Asset Based Lending (ABL) suppliers.

The ABFA has a website (www.abfa.org.uk) which lists all of our members. Our members represent over 90 per cent of Asset Based Fin-anciers in the UK and Ireland and the ABL section of our website al-so offers more information on this type of finance.

Once you have narrowed down your list of potential providers, ar-range to meet the team so that you can talk about your needs and get a feel for whether or not you can work with them. Assess their ex-perience in asset based lending and their ability to understand your business’ situation.

The Association of Asset Based Finance provides advice for companies seeking funding

QUESTION & ANSWER

THE GLASS SLIPPERAsset finance has become ‘the perfect fit’ for many companies during the recessionPHOTO: SHUTTERSTOCK

The inside track on using asset finance

VIRGINIA BLACKBURN

[email protected]

According to the Bibby Financial Services Business Factors Index, the manufacturing sector is now the strongest performing sector, with an average quarterly reading of 114.7 and September hitting a peak of 121.2 – the second highest reading of the sector to date

Key statistics include37 per cent of manufacturing firms state that their busi-

ness is performing better than 12 months ago

15 per cent of manufacturing firms feel the UK economy is

currently demonstrating signs of real recovery – the highest percent-age of any sector

37 per cent of manufacturing firms have seen an increase

in orders recently – the highest percentage of any sector

22 per cent of manufacturing firms feel more government

support would help stimulate eco-nomic recovery - the highest per-centage of any sector

ASSET FINANCE BROKEN

DOWN INTO FIGURES


Using your assets

Asset-based lending is more than just an alternative to traditional banks loans and overdrafts: it is a highly practical way for most com-panies to fund their growth. “Asset-based lending can be a very power-ful strategic management tool,” says Mike Symes, managing director of Strand Financial, a specialist fi nan-cial branding and marketing agency. “It enables companies to unlock the value of their receivables - that is, the accounts receivable. They can also re-lease value against current and fi xed assets, such as plant, machinery, free-holds and long leases, as well as in-tangible assets such as good will.”

Kate Sharp, chief executive of-fi cer of the Asset Based Finance As-sociation, agrees. “When compa-nies say, ‘I need money,’ they should think about the sort of money they need,” she says. “They may take out a £100,000 overdraft facility that will be of no use in six months’ time. One of the major problems compa-nies have is funding their cash fl ow: they have made and sold goods and

now they need cash for the next lot of goods. If you see a cash fl ow require-ment on a graph, it’s never a straight line, as an overdraft would be: needs change and your method of funding should refl ect that.”

According to Mike Symes, ABL can provide a signifi cant capital injection

and ongoing funding for businesses as they increase either stock or debt-ors. “Your facility increases and un-like an overdraft, you don’t need to re-negotiate a bigger new arrangement,” he says. “In the current economic cli-mate, overdrafts have been diffi cult to come by, and may become more so. But

if your company is rich in assets, then it can provide funding for, say, a new design logo, taking on a competitor or turning the business around.”

From the lender’s perspective, this is a far more secure form of lending, as it provides a direct view into the day-to-day running of the business, which means that it works out as a cheaper way of borrowing for the client. A fa-cility can be put into place from day one of the running of a new business, and it is particularly practical for are-as such as recruitment. “Recruitment companies tend not to have fi xed as-sets such as property,” says Symes. “They usually rent their premises so they can’t unlock that asset. Then they have to pay their temporary workers monthly, but they are not themselves paid until a month later, which means that it’s a capital intensive business upfront. And so they can use their in-voice book, instead.”

From the lender’s perspective, they have a very clear idea of how a busi-ness is doing, because they are deeply involved with its debt, which means there is a much greater degree of im-mediacy in providing funding than there would be otherwise. Speed and fl exibility is what companies need in an economy coming out of recession and that is what ABL provides.

“Needs change and your method of funding should refl ect that”

Mike SymesManaging director of Strand Financial

VIRGINIA BLACKBURN

[email protected]

Question: Why does asset based lending work better than more traditional loans and overdrafts?

Answer: Because it’s fl exible, effi cient and allows a business to unlock the value of its fi xed assets

UNLOCK THE VALUEAsset finance can enable businesses to release value against their fixed assets such as their plantsPHOTO: BILAN/SHUTTERSTOCK

NEWS

CONSIDER THE OPTIONS

2TIP

FACTS

The second quarter of 2010

showed a marked upturn, according to

the Asset Based Finance Association.

Total advances for ABFA members

were up two per cent from the same

time the previous year, at £14.59

billion. Sales were also up, increasing

during the quarter from £49.4 billion

to £52.4 billion, nearly up to their

previous peak at the end of 2008.

However, net borrowing from

sources other than asset based

fi nance has been falling, with HM

Treasury fi gures showing the fl ow of

net lending to businesses declining by

£3.5 billion in June, a fall of 8.1 per cent

from a year ago. Wider net lending has

now been falling continuously for the

past nine months.

The ABFA statistics suggest UK

fi rms are continuing to expand their

horizons outside of the UK, with fi rms

who use export invoice discounting

reporting an all time high, since the

ABFA started collating data, of £2.96

billion in sales.

STEVE BOX’S BEST TIPS

Chairman of the Asset Based Finance Association and managing director of HSBC Invoice Finance and Equipment Finance. He has seen a 29 per cent increase in invoice financing over the last nine months, and a 20 per cent increase in equipment funding. These are his top five benefits for using asset finance

Hidden valueAsset fi nance enables you to use an illiquid asset on a com-

pany’s balance sheet to create work-ing capital or cash fl ow. The compa-ny need not be solely reliant on the strength of its balance sheet, which means that even if the underlying business isn’t strong, the hidden value of an asset may be suffi cient to fund against.

Understand assets

The categories of asset are very wide ranging, including in-

ventory, stock, plant, equipment, property and intellectual property, brand and rights.

Financial advantagesA traditional overdraft is on demand and can be with-

drawn at any time. Companies us-ing asset fi nance would need to de-fault on their repayments or be in breach of a covenant to lose their funding. In addition, using equip-ment or debtor fi nance tends to be more capital effi cient than using a traditional bank, as the asset fi nan-cier’s probability of loss is less. There is less chance of default than there is with a typical overdraft.

A different approachYou can pool your diff erent as-sets and use all the compo-

nents for funding. You can leverage these assets by taking a broad ap-proach rather than an isolated one. This is where asset based lending really comes into its own.

Increased fundingAsset fi nance, by its very na-ture, is linked to an asset. As

the assets appreciate and sales turn-over increases, so the funding avail-able becomes greater. An overdraft is based on a balance sheet and can’t perform the same role.


Question: What should fi rms do when it comes to their IT needs?Answer: Turn to a specialist in IT fi nance and leasing

An increasing number of fi nance direc-tors are beginning to accept that, rather than being a drain on resources, IT as-sets can actually enhance a company’s fi nances. Lombard Technology Servic-es has seen a growth in understanding of the benefi ts of asset fi nance as an al-ternative to more traditional means of funding IT assets and technology equip-ment.

Ian McVicar, managing director of Lombard Technology Services says: “As challenging economic conditions im-pact on a company’s profi tability and viability, there is a range of funding op-tions available that can help to address the situation. For example, we can pro-vide technology hardware on lease, which means companies don’t pay the full capital cost. This can result in a sav-ing of between 10 and 20 per cent.”

Mishcon de Reya (Mishcon), an inter-national law fi rm with 58 partners and over 135 other legal staff in the UK and overseas, recently discovered the ben-efi ts of asset fi nance for technology equipment. As a long standing custom-

er of RBS and Lombard Technology Serv-ices it had originally requested a loan to support cash fl ow after recent invest-ment in new offi ces. Lombard off ered the sale and lease back of Mischon’s £1 million purchase of technology equip-ment as an alternative to a simple low interest loan.

For the offi ce move, Mishcon had ac-quired new assets and needed to re-fi nance these onto a more regular fi -nance plan, rather than the previous overdraft used. Tony Bash, director of fi -nance at Mishcon said: “We needed to improve our cash fl ow situation to en-sure we were not using our operation-al cash fl ow for capital expenditure. I’d originally looked into applying for a straightforward loan but Lombard ex-plained how a residual-based sale and lease back could be a more effi cient way of doing it.”

The ideal solutionA three-year residual-based sale and lease back with a quarterly rental was the ideal solution for Mishcon. A rental for each asset would only be paid dur-ing its useful life rather than amortis-

ing the full purchase price. Lombard re-fl ected the predicted resale value of the assets at the end of the lease by way of a reduced rental amount and confi rmed that, as the owner of the equipment, it would be responsible for WEEE (Waste Electrical and Electronic Equipment) compliant disposal.

Quick to see the benefi ts, Tony Bash said: “I’ve never used technology leas-ing before in my working life. It makes sense to lease technology, as those as-sets don’t have a particularly long shelf life. We don’t want or need to own them so leasing is a very sensible option in many ways. I think we refresh our PCs every three years. At the end of the lease you just give them back.”

Tony Bash added: “The main benefi t for Mishcon was management of cash fl ow. But it’s great that Lombard takes care of the compliant disposal at the end of the lease, really useful. We hadn’t re-ally considered this or any of the options put forward before. It was only when we got into discussion with Lombard that it became apparent that these were useful option for us. Lombard is the specialist in its fi eld, it can share its expertise and

discuss it in layman’s terms.” Ian McVicar concludes: “Many busi-

nesses will have locked up working cap-ital through outright purchase of assetswithout giving consideration to the po-tential of freeing up this cash to meet operational costs. Leasing helps to con-serve capital, therefore allowing cash to be retained for use elsewhere in the business. Being able to fi x and agree costs at start of the lease is a major ad-vantage when budgeting over the term of the deal.

“There is potential for business-es to make further savings as assets are only leased for the required period and the future re-sale value can be re-fl ected in reduced rentals. Lower costsare achieved as technology leasing en-courages an optimum three year re-placement cycle and avoids the rise inmaintenance, support and software ex-penditure. There are also tax effi cien-cies as VAT is reclaimable on the rentals,while payments can normally be off set against taxable profi t.”

Providing a simple IT solution

VIRGINIA BLACKBURN

[email protected]

LEADER TO LEADER

“Being able to fi x and agree costs at start of the lease is a major advantage when budgeting over the term of the deal”Ian McVicarManaging director, Lombard Technical Services

INSPIRATION

DECEMBER 2010 · 9AN INDEPENDENT SUPPLEMENT DISTRIBUTED WITHIN THE SATURDAY TELEGRAPH

FUNDING ITMishcon looked at alternative ways of funding their PC needs and saved about £100 per computerPHOTO: EIMANTAS BUZAS /

SHUTTERSTOCK

Hire don’t buyIt is often better to hire equipment these days rath-

er than buy it outright, because in that case it is not necessary to tie up capital.

Lease everythingYou can lease almost every-thing: hardware, software,

licensing, maintenance and a service contract. Ask around to find the provider that best suits your needs.

Budgets made easyRegular monthly payments means it is easy to budget,

not least because if a piece of equipment unexpectedly breaks down, it can be instantly re-paired or replaced.

Ask the expertSpecialist companies have specialist knowledge, pos-

sibly more so than in-house IT teams, and they also cost less than hiring full time staff. Most service agreements will include regular equipment updates.

All assets countFor companies that already own their equipment out-

right, it too can be utilised to raise capital, through tradition-al asset finance.

TOP TIPS


Driving your business into profi t

Most companies have needed some kind of vehicle at some point, be it a nice car for the managing director, or a fl eet of lorries to move the product around. Carlsberg, the international brewers, is no exception, and needs a variety of diff erent kinds of transport. Julian Daley is the reward manag-er for Carlsburg UK; based in North-ampton, he is ultimately responsi-ble for the company’s 250-strong car fl eet, which is spread around the UK.

“The people who drive the cars are a mix of senior management and those who need them for sales roles,” he says. “Until recently we used a wide make of cars, but now we have done a deal with Ford, BMW and Volkswagen, and any new orders will go through them.”

Most companies do not buy cars outright anymore as it makes far more sense to lease them, and this is what Carlsberg, or rather, its employ-ees, does. “We pay a car allowance to drivers, and they lease the cars from Leaseplan,” says Daley. “We thus avoid paying company car tax. We are also fulfi lling our duty of care to-wards employees, because under the

service contract, the cars are properly maintained, serviced, replaced when necessary and so on.”

Financially the arrangement also works well. “Rather than buying the

vehicles outright, and tieing up cash in assets, this keeps the cars off the balance sheet,” he says. “There’s a de-gree of certainty regarding costs, as the lease provider is taking the risk

on residual values and maintenance. We don’t need to employ an in house fl eet management team, as outsourc-ing allows us to concentrate on the benefi ts of company cars rather than worrying about a dealer network.

Carlsberg has been funding its car fl eet in this way since 2003 and the drivers contact the lease provider di-rectly if there’s a problem, rather than them. The initial decision to outsource came because the company initially owned its fl eet of cars and wanted to release the capital, “To create a higher return on working capital,” says Daley. And many other companies are do-ing the same thing. In the wake of the credit crunch, companies have been looking to cut costs wherever pos-sible, and with increasingly intense pressure in the public sector to mini-mise expenditure, the trend towards fl eet leasing looks certain to continue.

“My advice for companies look-ing to do this would be to make sure you’ve got all the processes right from the outset,” says Daley. “When you’re outsourcing, make sure you get all your needs and requirements upfront, because to pull back once you’ve got an arrangement in place is diffi cult.” But if you get the details right, then the administration and expense of running an in-house car fl eet is no more.

Question: What is the most cost effective way for a company to run a fl eet of cars?

Answer: By outsourcing the fl eet to a specialist rather than owning it outright

INSPIRATION

HOW WE MADE IT

FACTS

According to the British Vehicle

Rental and Leasing Association, the

industry is divided into three sectors:

rental, leasing and commercial vehi-

cles. Although it has 294 rental mem-

bers, as opposed to 78 leasing mem-

bers and 78 commercial vehicle mem-

bers, rental is in fact the smallest area,

with approximately 250,000 vehicles

taking part in about 10 million rental

transactions annually.

Leasing companies offer radically

different services, depending on wheth-

er they are dealing with private or cor-

porate customers, and whether the cli-

ent wants to buy the car at the end of the

lease. The most popular form of leasing

is contract hire, which has more than 50

per cent of the market. In total about 1.8

million vehicles are leased out.

Commercial vehicles comprise

trucks, trailers and vans, and there are

around 450,000 out on rental or leasing

contracts.

VIRGINIA BLACKBURN

[email protected]

NEWS IN BRIEF

Grey fleets drive away

Going green the easy way

The BVRLA has launched a sec-tion on its website to help compa-nies who wish to “green” their fl eet – making them more environmen-tally sustainable. This includes ad-vice on how to cut CO2 emissions, a “green index score” for compa-ny cars and tips for fuel effi cient driving. There is advice about car-bon off setting, too. See www.bvrla.co.uk for more details.

The “grey fleet” - employee-owned cars - is on its way out. Ac-cording to the British Vehicle Rent-al and Leasing Association (BVR-LA), companies should consider car leasing or outsourcing fl eet man-agement because of CO2 emissions and cost. Companies can make huge cost savings by outsourcing fl eet management. The BVRLA says that a 20 per cent reduction in or-ganisational grey fl eet mileage of 10 million miles could generate a net saving of over £1 million.

COST EFFICIENT Leasing your fleet could work out financially more beneficial for your business than purchasing the cars PHOTO: CARROTEATER/SHUTTERSTOCK

LOOK FORALTERNATIVES

3TIP

ALPHABET. THE LEASING COMPANY THAT EXPECTS YOU TO EXPECT MORE.

Alphabet is no ordinary fl eet management company. We expect our customers to expect a lot from us. That’s why we’re totally committed to delivering excellence and value in everything we do.

Our comprehensive range of fl eet solutions include:

Find out more on 0870 50 50 100 email [email protected] visit www.alphabet.co.uk

B C D E F G H I J K L M N O P Q R S T U V W X Y Z A B C D E F G H I J K LE F G H I J K L M N O P Q R S T U V W X Y Z A B C D E F G H I J K L M N OX Y Z A B C D E L I V E R I N G E F G H I J K L M N O P Q R S T U V W X YT U V W Y Z A B C D E X C E L L E N C E F G H I J K L M N O P Q R S T U VJ K L M N O P Q R S T U V W X Y Z A B C D E F G H I J K L M N O P Q R S T

ce


The last few years have been brutal for the British economy and now, as recovery starts, businesses are licking their wounds and reestab-lishing their position in the mar-ketplace once more. But it will take some time. It is widely accepted that to save capital, businesses have cut back sharply on investing in their core equipment and if they are to start to thrive again, then in-vestments must be made. “If Brit-ish businesses are not investing in kit to grow, the British econo-my won’t recover,” says Alex Bal-dock, managing director of Lom-bard, which, at 149 years old, is the world’s longest established leas-ing company. “We are now about six years into a four-year equip-ment replacement cycle - in other words, Britain is rusting. Compa-nies have put off capital expend-

iture decisions where anything metal is concerned.”

Baldock believes that the as-set fi nance industry has a crucial part to play in the economic recov-ery, because of the unique nature of the way it lends. “Asset fi nance, leasing, hire purchase - all of these methods of funding have lots of

benefi ts,” he says. “We provide the life blood of the capital: we pre-serve growth when times are bad and fund growth when times are good.” Like many in the industry, after some bleak years (although Lombard itself increased its busi-ness), he sees growth beginning to appear once more.

But the advantages to companies using this kind of funding cannot be overstated. “For a start, in addi-tion to conventional funding, as-set fi nance can extend an addition-al credit line,” he says. “It can also do so in many diff erent ways. For example, car hire companies may only need very short term funding and we can provide that.”

A second benefi t to business, is that fi xed budgets can be put into a company’s business plan. “The nature of fi xed rentals means that companies can budget with cer-tainty,” he says. And then there is the element of fl exibility: leasing and hire purchase both mean that the company can pay for the usage of the asset and no more.

Asset fi nance, along with free-ing up a business’s capital, is able to take on some of its risk profi le as well. “We can take the residual risk - the risk of selling the asset on, and so customers pay less upfront,” he says. “In addition to that, if a com-pany has a great deal of expensive equipment, a sale and leaseback agreement will unlock a great deal of value. These ransactions are ac-tually very simple and quick.” And while Lombard, like everyone in-volved in the fi nancial markets, is very aware of the importance of re-sponsible lending, it also has a free-dom conventional lenders do not.

Helping businesses to blossom

VIRGINIA BLACKBURN

[email protected]

Question: Why is asset fi nance so important for British industry?

Answer: Because it allows expansion even in tough economic times

NEWS

SEE THE BENEFITS

4TIP

FACTS

In August 2010, consumer credit

provided by the FLA grew by one per

cent. This growth was driven by sales

of used cars on dealer motor fi nance.

In August 2010, store card spend-

ing was down 21 per cent, person-

al loans down by nine per cent and

second-charge mortgages down by

19 per cent. Store instalment credit

spending was down by two per cent

and credit card spending was fl at, with

no change from August 2009.

In 2009, FLA members provid-

ed £72.5 billion of new fi nance to UK

businesses and households, of which

£53.2 billion was in the form of con-

sumer credit, which was a third of all

unsecured lending in the UK. Out of

that, £16.5 billion supported the pur-

chase of new car registrations.

In September this year, the

FLA launched the “Good Credit”

campaign, seeking to dispel myths

about credit. Find out more on

www.fl a.org.uk.

Consult early

1Speak to someone at an ear-ly stage when you’re draw-

ing up your capital expenditure plans for your business demands. Asset fi nanciers can be helpful from early on.

Choose carefully

2If you are thinking of using asset fi nance, look for pro-

viders who have weathered both good years and bad. Their history will tell you who they are. Many will off er to lend you an umbrella but will they take it away when it rains?

All assets have value

3Consider asset finance ir-respective of the asset

class. Traditionally, wheeled as-sets - cars, vans, lorries and so on - have been thought of as suitable for asset finance. But these days, plant, machinery and technology can be used as well. This is developing all the time: currently, most financiers prefer to fund businesses with critical assets. However, at some point in the future, companies may be able to use intangible as-sets to raise cash as well.

Free your cash

4Explore asset finance whether you are looking for

a new procurement or simply to free up cash. Sale and leaseback, in particular, can be very inter-esting.

ALEX’S BEST TIPS

4

The cash-saving green fleetOver the past few years, environmental considerations have risen up the business and social agenda just as technological advances in vehicle design and manufacture have improved fleet environmental performance.

That’s good news for companies that run fleets of vehicles for two reasons. Firstly, greener fleets are generally more economical – and in austere times anything that cuts costs has to be welcome. Over their lifetime, environmentally friendly fleets consume less fuel and are generally cheaper to insure and maintain. Secondly, the UK’s tax regime favours lower emitting fleets. They pay less vehicle excise duty, have more generous capital allowances and may access congestion zones without charge.

But taking advantage of the potential savings can be surprisingly complex. And as no two organisations are ever the same, there’s no one-size-fits-all solution to running the ideal fleet. The choice of vehicles; the type of fuel they use, their size, their daily use, all of these factors impact fleet composition and transport policy. Finance options; outright purchase, leasing, contract hire, add further complexity.

Whilst on the face of it a low-carbon approach to transport management seems straightforward (selecting greener vehicles, using them more efficiently, and relying on them less) expert help around the issues can save considerable sums – up to £1,000 per vehicle per year.

The Energy Saving Trust’s business transport consultants work with organisations large and small in both the public and private sectors to help them save cash and cut emissions. General advice for smaller fleets is quick and easy to obtain on 0845 602 1425, or by registering for a free monthly email bulletin. A fleet health check for businesses with more than 25 vehicles under 3.5 tonnes assess the current carbon footprint, benchmarks performance and makes recommendations for savings. And at the top end, a full Green Fleet Review provides tailored advice for fleets of more than 50 vehicles. Whilst it’s expert advice, most importantly it’s all free.

To find out more and register your interest go to www.energysavingtrust.org.uk/fleet or call 0845 602 1425

“If British businesses are not investing in kit to grow, the British economy won’t recover”

Alex BaldockManaging director, Lombard


The asset based lending market comes into its own at this point in the econom-ic cycle. Businesses have been through recession, some will have had losses and emerged with a depleted capital base. Con-sequently, when new orders come through and turnover starts to lift, they are under-capitalised. This causes two problems. The fi rst is that they need to get cash to fund in-creased inventory requirements. Secondly customers can sometimes take a very long time to pay their invoices. This means that although new orders may be coming in, the business has not actually received the cash from previous transactions. The great ad-vantage of asset fi nance is that it allows the business to make use of the invoices before they have actually been paid.

Because we can fund to inventory and in-voice values, we can help to fund growth. If you have an overdraft of £1 million, but you get an order for £10 million, that is going to cause problems with traditional lenders, but we can fund the invoice value immedi-ately, as soon as the orders start coming in.

Per sector, we are already seeing increas-es in businesses exporting as there has been a movement in exchange. This has made sterling more competitive and be-cause other European economies are begin-ning to see growth we are seeing increased demand overseas. However, the strength of the managing team is more important than the strength of the sector. I would happily fund a good management team in a weak sector rather than vice versa, because if they are better than their competitors, then they are going to make money.

Because companies have been cost cut-ting, it has made them more fuel effi cient. We’ve seen a steep decline in the past two years in the number of cars ordered, as fl eets usually have a 36 month replacement cycle and have been stretching it to 48 months. This has cut fi nance costs as there is a great-er deal of depreciation in a car’s fourth year, than its second or third. However, it does in-crease maintenance costs. Yet, since compa-nies have been struggling to get more credit, rather than ask for new cars, the best option has been to extend what they had.

There has also been more emphasis on what cars to buy, and how to buy them, which has had an eff ect on the environment and is encouraging the growth of green mo-toring. Companies are choosing lower CO2 cars as there are signifi cant tax benefi ts both for the driver and the company: the tax on benefi ts in kind to the driver is lower. CO2 is measured in grammes, the lower the bet-ter; in 2008, the average CO2 in an Alphabet car was 168g and now it’s 140. Fuel costs are much cheaper as there are a higher number of miles to the gallon. Companies are mon-itoring fuel usage, making sure their driv-ers are taking the most effi cient routes and clamping down on the use of a company car for private business.

Premium car manufacturers are begin-ning to design fuel effi cient cars that are al-so aspirational, and because of this, over the life of the car, some premium cars are cheap-er than cars made in volume.

The recession has given companies the excuse to be aggressive with their fl eet. Now, as we enter a new growth phase, they are leaner and more effi cient. It’s been a real shake-up which has been benefi cial both for companies and the environment.

The last few years have been tough. According to figures released by the Fi-nance and Leasing Association, busi-ness investment fell by 34 per cent in 2009 as customers were hesitant to com-mit to long term investment decisions. A number of foreign banks owning asset finance houses left the market as busi-nesses were failing to invest in their in-frastructure.

However, we were able to grow our lending and core business over this peri-od, as businesses began to make more as-set finance decisions than they did with any other types of lending. Cash might have been tight for many, but that meant sale and leaseback agreements were a very useful tool for many businesses, as it was a way of releasing money. This was particularly the case in the information technology sector: over half the business we have done with these companies has been in sale and leaseback. Many had spent lots of money on IT kit and real-ised this was a way of making it work for them.

Although some companies still choose not to use asset finance, we now deal across all company sizes from sole trad-ers to the FTSE 100. The recent economic climate has proved its worth: between 50 and 60 per cent of companies who have used asset finance come back to use that type of raising finance again.

What impact has the last three years’ economic turmoil and the more recent recovery had on the asset fi nance industry?

John NelsonCommercial director of GE

Capital

Mark SinclairDirector of leasing company

Alphabet

Alex BaldockManaging Director

of Lombard

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