| Bank of England urged to adopt US-style loan scheme |
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30 April 2010 Similar scheme in UK would help reverse fall in business investment Competitiveness of UK economy at risk The Bank of England should act urgently to boost capital investment by UK SMEs by adopting a similar model to the Federal Reserve’s multi-billion dollar loan scheme to US businesses says Syscap, the leading independent IT finance provider. Statistics just released by the Finance and Leasing Association (FLA) reveal that asset-based lending tumbled in the year to February 2010, down 26% to £18.3bn from £24.7bn the year before. The £1.14bn lent in February 2010 alone was the lowest monthly total in two years. The latest ONS statistics show that business investment in the UK fell to £27.1bn in the fourth quarter of 2009, down 5.8% on the previous quarter and down 24% on the same period in 2008. The Term Asset-Backed Securities Loan Facility (TALF) was created by the Federal Reserve at the beginning of 2009 to provide finance by lending against asset-backed securities in a number of sectors including equipment leases. To date $1.6bn of loans based on equipment loans and leases have been approved, including $139m in March 2010 alone. In comparison, the Bank of England’s Quantitative Easing (QE) scheme was suspended on February 4 without purchasing a single penny’s worth of lease backed securities or loans issued to small and medium-sized businesses generally. Philip White, Chief Executive of Syscap comments: “In the US they have realised that even though the economy is no longer contracting, a sustainable recovery cannot be built until business investment improves. The US authorities believe that SMEs are not out of the woods yet and they are still making billions of dollars of rescue finance available to them.” “Why has the Bank of England not moved yet?” “We may officially be out of recession but if capital investment by SMEs continues its dramatic decline, the sustainability of the UK economy could be placed in serious jeopardy.” “Back in July we were told that as part of the QE scheme, they would purchase lease-backed securities. None whatsoever were purchased. Leasing is a crucial source of funding to SMEs and we had hoped the BoE were serious about this commitment.” According to Syscap TALF has set much more sensible and realistic restrictions on the types of leases it will allow into its scheme, limiting itself to lend against those with a maturity of five years or less. However the Bank of England limited itself to a small subset of leases – those of less than nine months in length. Philip White adds: “The average equipment lease length in the UK is three years, so the vast majority of them were ineligible for inclusion by the Bank of England anyway. If they were in the US, they would have no problem.” Syscap explains that leases are central to keeping the UK economy competitive as it is the preferred method of funding by businesses for investment in new plant, machinery, precision tools, IT and sophisticated business software. Philip White comments: “Whilst UK initiatives like QE have helped boost commercial property prices and prop up Gilt prices and the Enterprise Finance Guarantee scheme has helped to underwrite some bank overdraft facilities it seems that funding of capital investment by SMEs has been left out in the cold.” See coverage of this press release below: |
