Write offs of bad debts by UK banks rose sharply in the latest quarter (Q2 2011), hampering their ability to increase lending to SMEs says Syscap, one of the UK’s leading independent finance providers.
Write-offs, by banks and building societies, jumped by 52% to £6.3 billion in the three months to June 30th from £4.1 billion the previous quarter.
The volume of write-downs during the second quarter of 2011 also showed a sharp year on year increase, up by 17% from £5.4 billion during Q2 2010.
Syscap says that this new surge in bad debts and the need for banks to continue to build up regulatory capital means that the hoped for recovery in SME lending by banks will be delayed.
SMEs looking to invest in new technology or equipment in order to grow their businesses will need to look for alternative sources of finance.
Philip White, Chief Executive of Syscap says: “The Bank of England is already warning of a tightening in lending conditions, and their latest figures show the size of the balance sheet holes that the banks need to compensate for.”
“With the economic situation deteriorating in the second half of this year, the banks are not going to be able to turn the taps back on any time soon.”
“That means that businesses are going to find it far easier to raise funds for capital investment by securing it against their assets with leasing, rather than seeking a conventional loan.”
According to Bank of England data, write downs of sterling debt jumped a massive 60% between Q1 and Q2 of this year, reaching £5.1 billion for the three months to the end of June, compared to £3.2 billion in the first three months of the year.
According to the FLA (Finance and Leasing Association), total asset finance provided to businesses in the last year (to August 2011) has increased by 8% compared to the same period last year, reaching £20.1 billion.
Philip White says that SMEs should make more use of leasing, not just because it is becoming a significantly more readily available form of finance, but also because it has a number of advantages to SMEs over conventional loans.
Explains Philip: “Funding raised through leasing does not impact on a business’s credit lines. That gives the company more headroom to borrow additional funds when they need them in the future. Most leasing arrangements, unlike loans, do not have a negative impact on a balance sheet.”
“The other advantage of leasing is that you can upgrade that equipment when it becomes obsolete. You can’t do that if you have used up your limited credit with a bank to buy the equipment outright.”
About Syscap Ltd
As one of the UK’s leading independent finance providers, Syscap provides tailored finance solutions and advice to help companies acquire the funding they need, when they need it.
Founded in 1990, Syscap has annual revenues in excess of £125 million and £250 million of assets under management.
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Catherine Sirikanda /Nick Mattison
Mattison Public Relations
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