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