One of the most pleasing aspects of being an asset finance provider is seeing the positive impact that the funding we secure for a customer has on their business, their aspirations and their growth. Whether it is spreading the cost of that new IT system (or even software license renewals), financing the fit out of an office space or refinancing existing plant and machinery, ultimately the outcome is always positive.
Sounds good right? Well yes, the outcomes inevitably are but that rather begs the question why don’t more businesses use it?
I must admit when I first joined the industry and learned about how leasing could benefit a client, I asked the same question. After all, many companies get to unlock significant tax benefits when choosing finance above cash whilst others are able to avoid normal budget restraints, deliver the project they want and start returning benefit to all their stakeholders. Where do I sign right?
It’s not about the numbers
Perhaps surprisingly, our experience over the last 20+ years is that the ‘technical’ aspects of whether or not to choose finance are not really the issue here. Almost formulaically, you can analyse whether or not the numbers stack up, match commercial requirements to available terms and even do detailed tax comparisons of using capital versus choosing to lease. Most of the time it makes complete sense but, inevitably, there are occasions when it doesn’t.
A recent survey starts to give us more of a clue as to where the problem truly lies. The British Bank found that over 42% of UK SMEs they surveyed do not currently use finance and are unwilling to do so whilst 68% agreed that “their aim was to pay down debt and remain free if possible”.
Debt is a dirty word in the UK, we puff our chests out and, like a badge of honour, declare we are debt free. We are proud not to use finance.
Culturally, that puts us somewhat at odds with many other developed countries. Take, for example, our near European neighbours in France and Germany. No one really considers buying property there until (and then only possibly) retirement whereas, here in the UK, home ownership is seen as one of the key indices of “having made it”. Australians are too busy spending their money enjoying life rather than sinking it into ‘stuff’ whilst our cousins in the USA would raise a Vulcan eyebrow at our determination to pay cash for everything.
We’re all doing it
The reality is that it is actually quite rare to find some who doesn’t use some form of finance in their daily life. Aside from the usual suspects (property and cars), we are all surrounded by finance agreements. From the ubiquitous mobile phone contract, through to digital media subscriptions (Sky, BT, Netflix, Spotify, Amazon, Apple etc.) and even home insurance, all are rental agreements where an element of the amount we pay covers the cost of funds, or interest to you and me.
Suppliers work hard to hide these fact from us (that £2,500 interest-free sofa is really a £2,150 sofa with the interest built in) because they too recognise our cultural hang ups. In business, look at how many things are now being offered on a subscription or “as a service” model.
Admittedly, slowly and generationally, attitudes are changing. As already mentioned, the principle of subscribing for to all manner of services is increasing popular and demand driven which is a good indication that attitudes are shifting.
See no, speak no, hear no finance
Wrapped up in our cultural insecurities around finance is also a great deal of ignorance and misinformation which hardly helps to give businesses the confidence they rightly need to do something different than pay cash upfront as they have always done.
Partly this is the fault of our industry. For too many years, too many supposed experts have cloaked the relatively simple concept of leasing in a mantle of techno-babble and confusing small print. Hardly surprising then that those responsible for making financial decisions in a business, self-confessed non-experts in this dark art of leasing, at best approach it warily or, perhaps, not at all. We’ve worked hard at Bluestone Leasing to over the years to do the exact opposite – to demystify the mechanics, to present the offer in a clear and easily understood manner and to employ ethical and transparent paperwork throughout. There is clearly much more for us and others in our sector committed to these principles to do…
Awareness of alternative finance products, and indeed providers, is another factor. Survey data has consistently shown that, outside of standard overdrafts, bank loans and credit cards, most businesses are simply not aware of other financial products. Interestingly there is considerable regional differences with, in general, a lower level of awareness outside of London and the South East.
We can endorse such findings. Take our Interiors division who specialise in financing the interior fit out for companies looking to relocate or refurbish their existing building. The concept that they can pay for their workspace much like they do their building, on a lease and spread over time is, almost exclusively, something a new client is surprised to find out. When they learn that they can include all their costs (including labour and fees) and many can save significant amounts of tax too, they are even more amazed.
Debunking the myths
The 2016 survey from Wesleyan Bank on SME Attitudes to Finance highlighted that only 24% of SMEs felt comfortable using an alternative finance provider compared to 63% who would borrow from a bank. Fear and ignorance are not exactly great motivators for changing behaviour but how real are those fears?
Leasing is complicated.
It can appear that way but it really is quite straightforward. Choose a professional advisor, not just one that specialises in asset finance, but one that gives you confidence that they know their onions and is able to articulate the concept clearly and comprehensively. If you come away from that call or meeting still scratching your head, choose again.
Leasing is expensive.
Too often clients are fixated on a rate, APR or cost in isolation. Although what you will be paying back is important, try to look at the bigger picture and factor in all the benefits that you are getting that you might not get with either cash or, let’s say, a bank loan. Tax savings, the ability to spread costs and the VAT and the opportunity cost of using cash to name just a few.
We are cash-rich, we don’t need to lease
You’ve got plenty of cash? Great – well done! Now how about making that cash work for you instead of sinking it into depreciating assets that only return value over time? Take a look at the list of clients on our website and you’ll see there’s a reason why 97% of FTSE top 250 companies use leasing. Ultimately it is less about how much cash you have and much more about how well you use it.
I use my own bank when I want to finance
Asset finance is a specialist area and, put bluntly, not a forte for most high street banks. An established asset finance business of reasonable size should be able to provide access to a myriad of alternative funders for you all focused on this arena – just make sure that they are truly independent so that they take a whole of market approach and don’t just offer their own, in-house funding.
In our case, the panel is now in excess of 60 and over two thirds of our funders are not accessible to you directly. At the very least, benchmark what your bank can do against these alternatives.
Finally think carefully whether or not using one bank exclusively for all your finance needs is sensible for you. Consider the idea of spreading your risk and retaining those credit lines with your existing funder(s) for when you need them.
Putting the lights on
Like many things that, on face-value, look sinister, once you understand how they work, things all make sense and you realise there is nothing to be scared of. I look back on the black and white Horror Double Bill (every Saturday night on BBC Two in the 70s) and remember the terror I experienced as a young boy with only mild amusement and warmth today. Like them, leasing holds no real monsters, just those that we imagine to exist.
Director, Bluestone Leasing