Asset finance is the most popular external
financing product for UK manufacturers, according to a report into
financing assets with the sector by EEF.
Eighty-six percent of manufacturers which
opted for external financing in the past three years chose asset
finance, significantly outstripping traditional loans, placed
second with 34%, according to a survey by the manufacturing trade
EEF also quotes another recent survey which
found that asset finance has been more widely used by manufacturers
in the past two years as a way of raising capital than loans and
overdrafts. That survey revealed that 37% of manufacturers accessed
asset finance over that period, with a similar proportion planning
to access it over the coming two years.
When deciding to utilise external finance, 44%
of manufacturers said a key reason was knowledge of the long-term
or full cost of the finance, adding that they would continue to
consider this as a key driver over the next three years.
Preferable interest rates appear to have been
of greater concern in the past. Two-fifths said this was an
influencing factor in the pervious three years, whereas only 34%
would consider them so in future.
There are differences in attitudes towards the
type of assets for which asset finance is appropriate. In top
place, 67% of respondents cited manufacturing plant and machinery,
followed by vehicles (50%), building and property (23%) and
hardware and software (20%).
The report reveals good awareness of the asset
finance products available in the market, with the three most
popular being contract hire, finance lease and hire purchase.
Approximately 60% of the survey’s respondents have, or are using,
these forms of finance.
The report also revealed 68% of manufacturers
used internal funds as one of the ways to fund asset
Furthermore, the report reveals, one-third of
manufacturers used only internal funds for such acquisitions over
the past three years – a trend that EEF predicts will continue for
the next three years, with 61% of manufacturers reporting that they
expect to draw on cash reserves for future purchases.
Just over a fifth of manufacturers taking part
in EEF’s survey said they hadn’t sought external finance over the
past three years due to an unwillingness to get into debt, with a
similar proportion expressing a similar view regarding the next
three years. Just 13% said that having the funds or cash available
was the reason for not seeking external funds.
EEF’s independent report was supported by
Lombard, whose managing director Alex Baldock said: “Lombard
believes strongly that the foundations for establishing stability
in the UK economy lies in manufacturing, and specifically in the
achievement of the growth potential both in the domestic and export
“With 89% [of manufacturers] stating that they
expect to invest in plant or machinery in the next three years,
it’s pleasing to see that the work undertaken within the asset
finance sector to raise awareness of this form of funding, along
with its benefits appears to be paying dividends – 86% of those
businesses that use external funding used some form of asset
finance, and there is generally good awareness of the products and
their benefits, as well as the major players in the market.
“However, the survey showed that 68% of
respondents paid for capital investment from company reserves, a
trend that appears set to continue as 61% indicated that they will
draw on reserves for future purchases. This undoubtedly comes from
the old adage that ‘cash is king’.”