With the hysteria surrounding recent problems in the financial market and the recent run on Northern Rock, you’d be forgiven for thinking Marx was on to something after all and that capitalism was about to come crashing down. The fact of the matter is that greed, as always, has created short-term memories. It’s not as if this has never happened before. Most resellers can probably remember a time over recent years when there have been similar credit crunch fears.
A few months back, MicroScope reported that "for those resellers that have used the banks as a source of credit and invoice discounting, the future looks set to get complicated." This is certainly true, but I believe there could well be an unexpectedly positive effect from recent events. The fact is that there is an urgent need for many resellers to reassess whether their credit lines are ‘fit for purpose’. For instance, asset finance frequently delivers many advantages over bank borrowing when it comes to financing technology investments, but of the UK’s £90bn-a-year investment in equipment and facilities (other than property), only 30 per cent is currently acquired using asset finance.
Rough calculations show there is between £30bn and £40bn of capital "frozen" in business assets (equipment and plant) purchased outright (most using bank borrowing). So although resellers might be expressing fears about the sustainability of their credit lines – and their customers’ credit lines – perhaps they should be focusing on re-evaluating their motivations for choosing a traditional high-street bank over an asset financier.
When it comes to the effect of the credit crunch on the asset finance industry, we have been receiving numerous enquiries from our reseller customers worried that we – like some of the major international banks – might be altering our rates and credit assessment policies. But my response is simply that stable, well-balanced financiers take a longer term, more holistic approach when it comes to risk. Our business is based on strong customer relationships and therefore we have an obligation to understand customers, their markets and the assets we finance.
So, just as we advise our customers to develop a diverse "basket" of credit lines, we also diversify our own credit sources. We are therefore more insulated from singular economic extremes such as the current ‘credit crunch’ and are less likely to make sudden changes to rates or lending policies.
I believe that, as long as macro-economic factors remain within acceptable tolerances, the credit squeeze will not adversely affect well-run UK businesses. They will always be able to borrow to invest when the credit is secured on the asset in question. As loan credit tightens, we are likely to see a greater swing towards asset finance to free up inefficiently used capital. Those channel players who are concerned that customers could delay investment decisions due to cash concerns could become more active in offering point-of-sale asset finance to facilitate sales.
Peter Austin is general manager at Siemens Financial Services
