Memorandum submitted by the Finance and
Leasing Association
The Finance & Leasing Association (FLA)
is the main representative body for the motor finance, consumer
credit and asset finance industries. In 2007, our members provided
£28 billion of new asset finance to the business sector and
UK public services, representing almost 30% of all fixed capital
investment in the UK. FLA members are likely to provide as much
finance to UK businesses in 2008 as they did in 2007.
SMEs use a range of different sources of finance,
and we believe that the financial support needed by SMEs reflects
this range. Companies with 5 or more employees are just as likely
to use asset finance (leasing and hire purchase) as term bank
loans. Asset finance helps growing businesses with their cash
flow, allows businesses to upgrade their equipment regularly,
and is relatively low risk for both the customer and the provider.
We believe, therefore, that the government should provide financial
support to SMEs through asset finance.
Such support for asset finance could be achieved
in various ways. One, which does not require any cash from the
government, is to make SMEs' tax capital allowances available
to asset finance providers, who would pass the benefits to their
customers through lower rental payments. At present, capital allowances
cannot be used by unprofitable businesses, which are often the
very businesses that need the most financial support. We believe
that any concerns about tax avoidance can be overcome.
Other forms of support would involve extending
existing and planned government schemes aimed at supporting the
flow of finance to SMEs to cover asset finance as well as bank
lending. We welcomed the fact that in the pre-budget report, the
Chancellor referred to a new Small Business Finance Scheme, the
name of which indicates that it may not be restricted to bank
loans.
But more needs to be done to ensure that sufficient
funds are available to meet the increasing demand for asset finance.
We have urged the Government to extend the current liquidity support
and credit guarantee schemes to providers of asset finance who
are not banks.
With the right kind of Government help, the
asset finance industry can play a more effective part in helping
SMEs weather the current difficult economic conditions.
8 December 2008
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