19 October 2009

Bank of England’s total spending to support leasing since July announcement totals £0!

• New BoE figures reveal nothing spent buying lease backed securities
• £175bn spent on other areas

Statistics from the Bank of England suggest it has not yet invested a penny of its £175bn economic stimulus package on support for the leasing market, despite announcing in July 2009 that it would start doing so, says Syscap, one of the UK’s leading independent finance providers.

The Government announced in July that as part of their “Quantitative Easing” programme they would start buying secured commercial paper backed by equipment leases.

According to Syscap, leasing is a crucial source of funding for SMEs as it helps spread the cost of assets and maintain a healthy cashflow.

• Leasing does not impact on a businesses’ other credit lines giving the company concerned more scope to borrow money when they need it in the future.
• Leasing allows a company to upgrade their equipment when it becomes obsolete
• Most leasing arrangements, unlike loans, would not have a negative impact on a balance sheet
• Leasing fuels investment in manufacturing and IT assets

Syscap explains that if the Bank of England starts buying up leases held by investors it frees those investors to fund new leases elsewhere. With the Bank of England as an active buyer of lease backed securities the cost of leasing should also fall.

Philip White, Chief Executive of Syscap, comments: “The hope was that the Bank of England was finally announcing support for leasing that would help SMEs fund the investments they need to start growing again. These figures suggest otherwise. It does beg the question as to whether the programme is ready yet and if it is why they haven’t started the purchases.”

Bank of England Asset Purchase Statistics (as of October 8 2009)

Syscap says that they raised doubts over the scheme earlier this year when the initial proposals were published, as the Bank of England had decided to buy commercial paper backed by equipment leases with a maximum maturity of just nine months.

Philip White explains: “The average equipment lease length is over three years. This means the majority of lease backed securities would be excluded from the scheme. Once leases have run down to nine months the risk is very significantly reduced.”

Syscap points out that the Bank of England’s (BoE) ultra cautious behaviour has raised questions over how seriously the BoE takes the issue of leasing within the wider context of financing the UK economy.

Says Philip White: “What is the point of the Bank of England announcing it is extending Quantitative Easing to lease backed securities and then not buying them? The Bank of England’s excessively-tight restrictions on what paper they will buy should be relaxed as a matter of urgency.”

Syscap adds that the Government has also chosen to exclude leasing from their Enterprise Finance Guarantee scheme (an initiative to partly guarantee funding of small businesses) despite extending the scheme to cover invoice discounting at the beginning of October.

Comments Philip White: “Businesses fund the vast bulk of their capital investment through leases so it makes little sense to exclude leasing from the Enterprise Finance Guarantee scheme.”

“If the Government could start helping SMEs fund capital investment through leasing the chances of their stimulus schemes having a lasting success would be significantly improved.”

According to statistics from the Finance & Leasing Association (FLA) the total amount of new UK business asset finance deals in the year to July 09 at £23billion was 23% down on the £30billion of the previous year.

*Figures rounded to the nearest £1m. However, the Bank of England has confirmed that the minimum purchase on the secured paper facility is £1m.

See coverage of this press release below:

GrowthBusiness.co.uk

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