Month: August 2014

Asset Based Lending Record

Small businesses fuel record level of asset based lending

A record £18.9bn was borrowed from asset-based lenders in the three months to the end of June, according to figures compiled by the sector’s trade body, highlighting the problems smaller businesses face in obtaining bank credit.

Demand for this sort of borrowing, most of which comes in the form of lending against unpaid invoices, has been fuelled by the problems small businesses face in accessing term loans and overdraft facilities from high street banks.

“We are seeing more and more businesses of all sizes and types taking advantage of invoice finance to fuel their growth, particularly as more traditional forms of lending remain subdued,” said Jeff Longhurst, chief executive of the Asset Based Finance Association, which compiled the figures.

“More businesses are viewing their invoices as what they are – one of their biggest assets.”

However, just under a third of the total was used by companies with an annual turnover greater than £100m according to the ABFA.

The total amount of invoice finance and asset based lending rose by seven per cent during the second quarter of the year, up from £17.7bn in the previous three months, and 10 per cent more than the year to June.

Four-fifths of asset-based finance is invoice finance while the other 20 per cent is lending secured against assets, including inventory, property and machinery.

Despite numerous schemes and near-constant political pressure for banks to improve access to finance for businesses, credit conditions remain tight in the UK.

Asset-based lending has been on an upward trajectory since 2009, during which time traditional lending has fallen by a fifth. But it is still a small percentage of the total borrowing by businesses in the UK, which stands at £384bn.

Its growth has also been insufficient to fill the decline in traditional bank lending, which stood at $492bn in June 2009.

“Asset-based finance is a proven tool for growth, enabling companies to increase their funding as they grow,” said Mr Longhurst.

“What’s becoming increasingly clear is that asset-based finance such as invoice finance in particular, is the alternative to traditional lending for SMEs that the Bank of England and the Treasury have been looking for.”

[FT]

Asset Finance Companies

Business is better than ever for Asset Finance Companies

Business has never been better for asset finance companies. There’s a combination of reasons behind this. For starters the economy is growing. Businesses need more equipment, machinery and vehicles if they are to capitalise on the opportunities being created by the buoyant demand. And the banks, as we all know, are still proving very unwilling to lend money to SMEs.

There’s also the fact that asset finance is a product most businesses are familiar with. It’s a well-established way of raising the money to expand a business, so you don’t have to do a great deal of education – people understand how it works and the benefits are pretty obvious.

Whilst asset finance companies can’t take the credit for these factors there are a couple of things most in the industry are definitely doing right.

Keep It Simple

Our finance service are very simple and straightforward. Asset finance is not intrinsically complicated, so it should be kept that way! The bottom line is clients just want to know what they’re paying for, how it works, and what it is costing them.

They find this approach very reassuring because everything is kept transparent and clear. Some finance providers, by contrast, like to wrap asset finance in mystique, and create more sophisticated products around various forms of leasing and personal contact purchase schemes. They would claim that they’re “adding value” and giving the customer a variety of different options – but others may feel that this is just a way of obscuring fees and costs.

Trust is priceless

Clients want to see exactly what they’re getting, and that creates trust. Trust is an increasingly rare commodity in today’s world, and therefore very valuable.

At the end of the day people buy people, and if we sit down with a decision maker who feels good about dealing with us, then that is worth more than getting the lowest interest rate available. I think people are smart enough to realise that things cost what they cost for a reason, and something that seems cheap initially can actually prove expensive in the long run.

[Insider Media]

Growth in Asset Finance

Sustained growth in asset finance

New figures released today by the Finance & Leasing Association (FLA) show new business in the asset finance market up by 6% in June compared with the same month in 2013, and up by 10% in the first half of this year.

The continuing broad-based recovery is evidenced by solid performances in plant and machinery and commercial vehicle finance, with growth of 19% and 18% in the first half of 2014.

Commenting on the figures, Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said:

“The first six months of 2014 have seen sustained growth in asset finance which has helped support the recovery in key sectors of the economy. So far this year, more than 60% of asset finance new business went to support business investment by SMEs.”

UK Construction News

The latest UK construction news shows that Carillion improves offer for rival Balfour Beatty

UK construction firm Carillion has sweetened its takeover offer for rival Balfour Beatty, arguing there is ‘powerful strategic logic’ in a merger.

It comes as Carillion announces a 5% rise in pre-tax profits for the six months to the end of June to £67.5m compared with £64.2m a year earlier.

Carillion said it had held meetings with shareholders since 11 August, when its second offer was rejected.

It has offered an extra cash dividend of 8.5p per share to shareholders.

It also said a merger would save both companies £1.5bn and reduce the cost base of the combined group by at least £175m a year by the end of 2016.

‘Financial benefits’

On Monday, Balfour Beatty said it had swung back into profit, making £1m for the six months to the end of June, compared with losses of £4m for the same period a year earlier.

Carillion said on Thursday it “continues to believe in the powerful strategic logic and financial benefits of a merger with Balfour Beatty and is therefore continuing to consider its position.”

According to reports, one roadblock to the deal is Carillion’s desire to cancel Balfour’s planned £200m sale of its US business Parsons Brinckerhoff.

Balfour Beatty shares rose 1.48% to 240p, Carillion shares rose 2.22% to 327.10p.

[BBC News]

UK Construction Output

UK construction output rebounds in June as homebuilder Bellway reports booming sales

Growth in the UK’s construction sector was flat across the second quarter as an increase in June reversed May’s declines

Construction output has delivered another month, thumping economist forecasts.

In June alone, output in the construction industry rose by 1.2pc compared with May. That saw the ONS update their estimate for second quarter construction growth to flat from the previous three months, up from a 0.5pc drop.

The upward revision will affect the ONS’ first estimate of second quarter GDP, which assumed that construction output would fall. But as construction makes up a small proportion (6.3pc) of GDP, the change should not affect growth estimates to one decimal place.

Total output rose by 5.3pc in June on the same month last year according to the Office for National Statistics (ONS), exceeding analyst growth estimates by 0.6 percentage points.

IHS Global Insight’s Howard Archer now sees the sector “well positioned” for expansion in the third quarter.

The rebound, coupled with healthy survey evidence, “suggest that the sector’s upturn remains firmly intact despite output being only flat overall in the second quarter” said Mr Archer.

The UK’s housing minister, Brandon Lewis, said that today’s figures show that government “efforts to get Britain building have worked”, with new housing construction output at its highest level since 2007.

British homebuilder Bellway today announced that it sold 21.2pc more homes in the year ended 31 July on the previous year.

Bellway chief executive Ted Ayres said that “the group has reacted positively to the continued strength of the UK housing market, significantly increasing output to satisfy customer demand”.

The company also saw average selling prices up by 10.2pc to £213,000 in the same period. Bellway said that house prices were up a result of “ongoing changes in product and geographic mix”.

UK Service Sector Growth

UK service sector growth hits eight-month high

The UK services sector grew strongly in July, with business activity hitting an eight-month high, a survey suggests.

The Markit/CIPS services purchasing managers’ index (PMI) reached 59.1 in the month, up from 57.7 in June. Any score above 50 indicates expansion.

Services account for more than 70% of the UK economy and have been the driving force behind the recovery.

The services sector growth shows no sign of abating, said Markit’s chief economist Chris Williamson.

“The July PMI showed the sector expanding at the fastest pace since last November, as demand for services continued to increase at a rate rarely seen in the survey’s 18-year history,” he said.

Figures released on Monday showed the construction sector PMI at 62.4, with housebuilding growth at its fastest rate in almost 11 years.

‘Rarely seen’

The service sector data suggested further strong economic growth in the July-to-September quarter, with GDP likely to hit 0.8% over the period if the services sector continued to grow at current rates, he added.

The UK economy has grown by 0.8% in both the first and second quarters of this year.

If a similar rate is posted in the current quarter, calls for a rise in interest rates later this year will increase, Mr Williamson said.

[BBC News]

UK Manufacturing Growth Slows in July

The pace of UK manufacturing growth slows in July

The impressive recovery by Britain’s manufacturers slowed last month as new figures pointed to the sector’s weakest performance in a year. However, it is continuing to enjoy one of its strongest growth periods for 22 years, a survey has suggested.

Manufacturing production rose during the month to meet strong demand, according to research firm Markit. However, the pace of growth slipped to its lowest in just over a year, the firm said.

Data from the closely watched The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) survey for July gave a weaker-than-expected reading of 55.4, down from 57.2 a month earlier – but still well above the 50 threshold, indicating growth. Economists said they were not overly worried by the figure, which comes on the back of one of the sector’s best quarters in two decades. However, it does raise fears that businesses are starting to feel the impact of sterling’s strength, as well as jitters over looming interest rate rises and a drag on some European export markets due to the crisis in Ukraine.

Businesses may be concerned that the crisis in the Ukraine could escalate further, weakening demands for exports to key European markets, senior Markit economist Rob Dobson said.

“If the situation with Russia deteriorates further, we should expect goods exports to come under further pressure,” Mr Dobson said.

The Markit figures support Bank of England expectations that growth would slow down slightly from the rate seen in the first half of the year, he added.

Lee Hopley, chief economist for manufacturing industry body EEF, said that firms should not be alarmed by the survey findings.

“The survey continues to point to growth in activity across the sector, and at a faster pace than the long-term average,” Ms Hopley said in a blog post.