Commercial Finance (July 2011)

Provided by Credit Today

Business lending looks set to be the elephant in the room for months to come, as Project Merlin has already proved. But some areas are swimming comfortably against the tide, and for members of the Asset Based Finance Association (ABFA) the outlook is positive for UK plc.

The latest ABFA figures from the second quarter of this year revealed that total advances made by members through invoice finance grew by 9% year on year, while financing advanced through leasing and hire purchase grew by 8% during the same period. According to the lenders this remarkable contrast to mainstream lending areas is down to two factors.
The first is client retention, especially by the banks, which have managed to maintain strong client bases through
the flexibility of asset based lending despite the recession. The second is falling insolvency levels.

Asset based lenders did not come through the crisis unscathed, and no lender can say with a straight face that their current decisions are being taken without a formidable undercurrent of risk analysis and due diligence. The recession was bad for commercial financiers just like it was for every other sector.

However, recovery appears to be on its way. Despite a slight spike in early 2011, the level of corporate insolvencies
has fallen from a recession high not seen since the early 1990s. But there are still concerns. HM Revenue & Customs says it is not storing up problems with the Time to Pay scheme, and that there will not be a flurry of corporate failures if it is withdrawn, as some commentators suggest.

But many argue that one of the most important factors in keeping insolvencies low has been the forbearance of the Revenue when it comes to collecting tax, and with as much as £50bn said to be currently awaiting collection, it is not a sustainable situation.

Allied with this is the base rate. Each week yields a different economic forecast, but the prevailing argument seems to be that the UK’s recovery will not withstand a base rate rise any time in the near future. In the meantime, this government appears to be relatively at ease with the level of inflation, though again, no economist will accept this as a longterm strategy.

Predictions are now focused on a base rate rise next year as opposed to the third quarter of this year. Once again, commercial financiers will have one eye on the monthly Monetary Policy Committee meetings for some time to come, and many admit that a future rise is being written into today’s lending decisions.

Not that any of this will worry the asset based lending industry. For the moment this sector can make hay while the sun shines.

This special supplement addresses the issues, sources opinion from leaders in commercial finance and explores the implications of economic trends on the sector.

 

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