SMEs using asset finance to fund IT investment

UK businesses are increasingly replacing bank loans with asset finance as their preferred way to fund investment in IT equipment, research finds.

According to independent finance provider Syscap, asset finance used by businesses to acquire IT and software jumped 26 per cent to £1.3 billion in the last 12 months, up from £1.1 billion last year.

The organisation says that the rapid growth in asset finance, including leasing, to fund IT investment is far outpacing the overall growth in asset finance which grew by 3 per cent over the same period.

Asset finance is seen as an increasingly important source of funding since, for many businesses, traditional lending has reduced significantly, argues Syscap.

Since the recession banks have been under pressure to rebuild their balance sheets to meet strict capital asset ratio requirements. More recently, some have had to absorb the cost of PPI misselling claims.

Overall lending by banks to UK businesses is continuing to fall – down by 2.8 per cent in the last 12 months.

Syscap chief executive Philip White says that businesses have under-invested in IT equipment because of uncertainty in the economy and because bank funding for IT investment has been so hard to secure.

‘Some banks have also been unwilling to lend money for IT solutions because they no longer have the specialist skills required to understand the risk and long-term value involved in lending against IT assets.

‘This lack of available bank liquidity for IT investment is even more worrying than the overall lack of business finance as IT investment is so vital in keeping UK businesses competitive on a global basis.’

White adds that, for businesses of all sizes, IT investment is critical in driving efficiency, scaleability and growth.

‘Many of the UK’s vitally important small to medium-sized businesses are having to cope with IT infrastructure that is years older than it was originally intended to be.

‘Any signs that businesses are getting fresh finance to invest in hard IT hardware and software are very welcome.’

Despite the increase in leasing to fund IT equipment, Syscap admits it is concerned that even this good news may be dwarfed by the fall off in traditional bank lending for this kind of investment.

However, White argues that a longer term rebalancing of business funding away from bank loans and towards asset finance could turn out to be positive, citing the fact that some traditional bank lending, such as overdrafts, can be discontinued at almost no notice, whereas lease finance stays in place as long as the business is able to make its payments.

Related: What is asset finance and how does it work?

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