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Asset finance new business grew by 14% in July 2023

New figures released today by the Finance & Leasing Association (FLA) show that total asset finance new business (primarily leasing and hire purchase) grew in July 2023 by 14% compared with the same month in 2022. In the seven months to July 2023, new business was also 14% higher than in the same period in 2022.

The business new car finance sector reported new business up in July by 59% compared with the same month in 2022. The business equipment finance and commercial vehicle finance sectors reported new business growth of 15% and 12% respectively, over the same period.

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Commenting on the figures, Geraldine Kilkelly, Director of Research and Chief Economist at the FLA, said: “The asset finance market has reported double-digit new business growth in eleven of the last twelve months. Growth in July was more broad-based with higher levels of new business in the equipment finance as well as the vehicle finance sectors.

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“In the twelve months to July 2023, asset finance new business provided to SMEs reached a record level of £24.4 billion. There has been increased use of leasing and hire purchase by larger SMEs with 10 or more employees. The success rate of SMEs who applied for asset finance since the beginning of 2022 was high, with 93% of those businesses offered and taking what they applied for.”

By Lisa Laverick

Source: Asset Finance International

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Discover how asset-based lending could transform your business

These are challenging times for businesses in Scotland. The effects of high inflation, supply chain disruption, and increasing energy prices are all leading SMEs to turn to more flexible forms of finance.

Lenders can play their part and offer tailored solutions to support SMEs trying to thrive in difficult conditions. In response to this, Shawbrook has enhanced its asset-based lending offering*, simplifying the onboarding process to give businesses another option during complex times.

What is asset-based lending?

Asset-based lending (ABL) is a form of business financing that enables a business to secure a loan by offering its assets as collateral. Assets often include inventory, machinery and equipment, as well as real estate or debt owed to the business. By leveraging the value of these assets, businesses can access capital to manage cash flow, fund expansion, or seize growth opportunities.

Historically, securing an ABL facility was complex and time-consuming, with businesses needing documentation for each asset class they leverage. This made ABL a complicated financing solution, typically used as a last resort or where businesses have poor credit histories.

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ABL for the modern-day

At Shawbrook, we feel that ABL can be versatile and enable businesses to unlock substantial value tied up in both paper and physical assets, providing the financial headroom to support pivotal events such as acquisitions, management buy-outs, and other grown plans.

Recognising this, we streamlined our ABL offering so businesses could leverage multiple asset classes within one straightforward piece of documentation. We removed the cap on the collateral mix that businesses employ for funding leverage, with every deal judged on a case-by-case basis. These changes greatly improve the speed of the onboarding process and make the facility significantly easier to manage over its lifetime.

This enhanced ABL proposition can also be integrated with other financing facilities to deliver a bespoke hybrid lending experience. This enables clients to gain access to a highly versatile product and adapt to changing circumstances in real time.

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How an ABL loan transformed Genius Food Limited’s facilities

Utilising Shawbrook’s enhanced ABL solution, an Edinburgh-based food manufacturer quickly secured funds against its business assets to support further growth.

A specialist in manufacturing gluten-free goods which are distributed worldwide, Genius Foods approached Shawbrook to refinance an existing invoice finance line and raise funds to improve production lines at its Bathgate facility. Previously, securing funding on these terms would be painfully time-consuming and complex, resulting in heaps of paperwork.

Using the firm’s invoices as collateral, Shawbrook rapidly assembled a £7.5m asset-based lending package for Genius, incorporating a financing line, a property loan and a cashflow loan, on a 25-year amortised repayment profile.

The terms agreed demonstrate the flexibility and value of ABL in preserving cashflow whilst meeting a multitude of different needs for a client.

The package enabled Genius to leverage its assets to generate the cash needed to continue providing high-quality goods to market and refinance its original invoice finance line, all within one facility that delivers efficiency and is easy to manage.

By Leena Sidat

Source: Insider

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Consumer car finance new business volumes fell by 10% in May 2023

New figures released by the Finance & Leasing Association (FLA) show that consumer car finance new business volumes fell in May 2023 by 10% compared with the same month in 2022. The corresponding value of new business also fell by 10% over the same period.

In the five months to May 2023, new business fell 9% by value and 8% by volume compared with the same period in 2022.

The consumer new car finance market reported a fall in new business in May of 8% by value and 9% by volume compared with the same month in 2022. In the five months to May 2023, new business volumes in this market were 9% lower than in the same period in 2022.

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The consumer used car finance market reported a fall in new business in May of 11% by value and 10% by volume compared with the same month in 2022. In the five months to May 2023, new business volumes in this market were 7% lower than in the same period in 2022.

Commenting on the figures, Geraldine Kilkelly, Director of Research and Chief Economist at the FLA, said: “May saw the continuation of recent trends with a strong performance in the business new car finance market offset by lower levels of new business in both the consumer new and used car finance markets.

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“The industry remains cautiously optimistic about the prospects for future growth, with three-quarters of motor finance respondents to the FLA’s Q2 2023 Industry Outlook Survey anticipating some increase in new business over the next year.”

By Lisa Laverick

Source: Asset Finance International

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Asset finance new business grew by 12% in April 2023

New figures released by the Finance & Leasing Association (FLA) show that total asset finance new business (primarily leasing and hire purchase) grew in April 2023 by 12% compared with the same month in 2022. In the first four months of 2023, new business was 13% higher than in the same period in 2022.

The business new car finance and business equipment finance sectors reported new business up in April by 48% and 13% respectively, compared with the same month in 2022. The commercial vehicle finance and plant and machinery finance sectors reported falls in new business of 2% and 6% respectively, over the same period.

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

Commenting on the figures, Geraldine Kilkelly, Director of Research and Chief Economist at the FLA, said: “The asset finance market reported a year of sustained monthly new business growth in April supported by continued strong growth in the business new car finance sector. Annual new business in April at £35.3 billion was only 1% lower than the pre-pandemic peak in 2019.

“Asset finance supports business investment across all major industry sectors and business size. New business provided to larger businesses grew by 27% in April, to the manufacturing sector increased by 30%, and to the services sector grew by 11%, compared with April 2022.”

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By Lisa Laverick

Source: Asset Finance International

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The surging popularity of invoice finance

With cash being crucial to business survival and growth, SMEs need to access cash through alternative funding solutions to continue to enable them to adapt, innovate and grow.

Invoice finance is one of the most effective ways for businesses to improve cash flow and sustain growth in today’s uncertain climate.

As SMEs face up to a deepening late payments crisis, invoice finance – borrowing against the value of unpaid invoices – has surged in popularity to provide crucial support in tough economic times.

By releasing up to 90% of the value of unpaid invoices, businesses can access additional working capital and use the funds to support day-to-day cashflow requirements or fuel future investment plans focusing on corporate social responsibility.

Invoice finance is not a new funding solution; it has been around for decades and has supported many thousands of businesses over the years, as it still does. By unlocking cash that could otherwise be trapped in unpaid invoices, invoice finance is a financial solution that can support the entire credit management process, protect against the risk of non-payment, and deliver funding when many other funding types are unable to.

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In the UK, invoice finance has become an increasingly popular alternative to traditional financing options like bank loans and overdrafts, as it offers a more flexible and accessible solution for businesses in need of cash flow support and caters to a wide range of industries, including manufacturing, wholesale, construction, recruitment, and professional services.

Recent data from alternative finance provider Time Finance has shown the growing popularity of invoice finance amongst the B2B community, with demand predicted to rise throughout 2023 as SMEs set out to stabilise their finances.

The new insight shows that invoice finance is ranked highest amongst alternative finance solutions, with 32% of financial intermediaries stating that invoice finance will be the most popular service to support cashflow this year.

Phil Chesham (pictured), Managing Director of Invoice Finance at Time Finance, commented: “We are seeing a real uplift in businesses that come to us for invoice finance, and this is definitely a trend we expect to see continue throughout 2023. At face value, this is an indicator of the cashflow challenges that businesses are experiencing, but looking at this more positively, we can take this as a sign that more businesses are discovering the real value of invoice finance.

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“Invoice Finance is a helpful tool to manage cashflow and when harnessed as a part of a long-term financial strategy, it can ensure that a business has an uninterrupted supply of working capital in the bank. As a result, invoice finance enables businesses to inject their own money into their investment plans, whether that’s recruitment, skills development, equipment or marketing.”

Time Finance’s plans to double their invoice finances sales team in 2023, with the recent appointments of Thomas Ludden, Tariq Bourdouane, Neil Fullbrook and Casey Baldwin, shows the rising popularity of invoice finance witnessed by alternative finance providers.

There are a number of reasons for the rapid expansion of invoice finance in the UK, but a key driver is an increase in the number of late-paying companies. In their research, Time Finance found that B2B businesses are owed an average of £250,000 in unpaid invoices and some wait up to 120 days for payments to come through.

Access to liquidity is more critical than ever for SMEs who are the backbone of the UK economy, with many traditional financing providers increasingly rejecting applications for cash. Reducing the funding available to SME businesses during tough economic periods only hurts it more at a time when demand for liquidity needs to be expanded and not reduced.

Rising inflation and interest rates, along with increasing energy costs, are also challenging small businesses this year, with many facing closure. Providing SMEs with a path to secure lending will play an integral part in the economy’s resurgence.

Invoice finance provides SMEs with a variety of benefits including flexibility, faster turnaround, scalable funding, higher borrowing potential, and mitigating payment risks. Smaller independent funders also have more flexibility than traditional providers and can take advantage of value-creating opportunities.

By embracing alternative financing options such as invoice finance, SMEs can not only survive but also thrive in a post-pandemic world, despite the current economic challenges they face.

By Lisa Laverick

Source: Asset Finance International

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Brokers poised for success in 2023, finds Time Finance roundtable

Market resilience and optimism continue to boost confidence amongst brokers and fuel plans for growth, finds Time Finance.

In a recent industry roundtable, the alternative finance provider invited a panel of leading Asset Finance brokers from across the country to discuss market predictions for 2023 and plans to assist recovery and growth of the UK SME market.

The conversation covered the vital role of technology and data, the specific training required to support the next generation of brokers and confidence for the year ahead.

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

The overriding outcome uncovered universal optimism from brokers as they told Time Finance of plans to expand their workforce and increase their headcount to keep up with the growing demand for finance from businesses. Upskilling existing employees through bespoke training packages and funder-led broker academies was deemed to be a key priority for the year ahead.

Across the board, investment plans were fuelled by a confidence in the recovery and strength of small-medium business community, who make up 99% of the UK economy. This included bringing in new systems, processes, and technology to quicken funding decisions and adopting a data-led strategy to uncover emerging trends and identify opportunities to offer additional support for clients.

Steve Nichols (pictured), Director Asset Finance at Time Finance, said: “We’re encouraged by the resilience and adaptability of the broker market as they set wheels in motion to invest, grow and bolster their support for SMEs in 2023.

“In the wake of rising costs, supply chain disruption and many other cashflow challenges hampering businesses right now, our roundtable comes at a crucial time and shines a light on the importance of helping businesses feel confident about their future. It’s fantastic to see such a remarkable ability from our brokers to pivot, adapt and innovate, which will only help to poise brokers and our collective clients for success in 2023.”

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Amongst the attendees were Tom Roberts from Moorgate Finance, Carl Johnson from Anglo Scottish, George Parker from Halo Finance, Jack Smith from Love Finance, Ryan Williams from Victor Finance, Tom Perkins from Charles & Dean, and Rob Dermody from PMD Business Finance.

Steve added: “We look forward to hosting many more roundtables and continuing to bring together our valued broker network to discuss the future of finance for SMEs and how best we can support their ever-changing needs. And, as we continue to invest in our own offering and increase our support for SMEs, we too remain optimistic about the opportunities that lie ahead.”

By Lisa Laverick

Source: Asset Finance International

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Business Sentiment Index reveals a cautious return to confidence for SMEs

Close Brothers Asset Finance’s Business Sentiment Index (BSI), which measures SME business confidence, has risen for the first time since September 2021 following three consecutive falls, and a low at the end of 2022. These were caused, in the main, by rising inflation, energy cost increases and higher interest rates.

Despite the headwinds still being faced by small and medium-sized firms and inflation stubbornly remaining in double digits, wholesale energy prices have fallen from their summer 2022 peaks, and there appears to be more certainty about where interest rates rises are headed, all of which is helping firms plan with more assurance.

This change in confidence is better understood when looking more closely at businesses’ priorities, which are achieving growth (28%) and managing costs (26%), well ahead of issues like paying down debts (9%) and business consolidation (9%).

Neil Davies (pictured), CEO of Close Brothers’ Commercial business, said: “After well over a year of declining confidence – according to our data – it’s encouraging to see an element of positivity returning to the market, no matter how tentative.

“What business owners want, almost more than anything, is an element of consistency, which gives them the ability to plan and forecast effectively. Many of the recent challenges have been entirely unexpected, and after the difficulties of the past few years, it’s impacted their ability to grow.

“But what it has again demonstrated is the continued resilience of the UK and Ireland’s SMEs, and we’re looking forward to working with them in the coming months and years.”

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

Appetite for investment. Overall, the appetite to invest remains strong, as it was at the end of 2022, with three-quarters of UK firms looking to seek funding for investment in the next 12 months, up from 67% in July 2022.

This is reflected across all key sectors, with the most notable rise coming in transport & haulage, where the number of firms planning to seek funding has risen by 9% to 81% (from 72%), while manufacturing & engineering remained very strong at 83%; services saw a fall of 13%, from 76% to 63%.

Missed opportunities. The number of companies that have missed business opportunities because of a lack of available funding fell from 51% at the end of 2022 to 45% in May 2023.

While this is an improvement, these are historically ‘high’ figures – for example, in May 2022, 37% of respondents answered ‘yes’ to the question ‘have you missed a business opportunity in the last 12 months, due to lack of available finance?’.

It would appear businesses are concerned about impacting their cashflow by dipping into their reserves or taking out a standard loan and adding to their debt burden.

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Economic outlook. Businesses continue to be more negative than positive about the macro-economic outlook but the gap between positive and negative sentiment narrowed significantly since the start of 2023.

That being said, this indicator that has contributed most to the decline in the overall BSI; for example, in November 2021 75% of respondents were positive about the economy – by December 2022 this had fallen to just 36%.

From a sector perspective, transport & haulage again saw the biggest swing towards the positive.

Predicted business performance. Predictions about future business performance remained stable, with the majority expecting their prospects to remain unchanged. Overall, fewer firms predict they will contract than earlier in the year (10% against 15%).

The most notable rise in positivity is the print and packaging sector, which saw an increase of 20% (19% to 39%) of firms expecting to expand.

Score calculation. The BSI is based on the views of 911 business owners and senior members of the UK’s business community and calculated from data charting their appetite for investment in their business in the coming 12 months; access to finance and whether they’ve missed a business opportunity through lack of available finance; views about the UK’s economic outlook; and thoughts on their likely performance in the coming 12 months.

By Lisa Laverick

Source: Asset Finance International

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Average SME plans to invest £321k to grow their business

New research from Aldermore’s SME Growth Index has revealed the investment and growth plans of small and medium-sized enterprises (SMEs) in the UK. Despite the ongoing cost-of-living crisis, SMEs plan to spend an average of £321K on growth strategies over the next year. One in eight (12%) SMEs plan to spend over £1 million investing in growth.

SMEs plan to grow online but curb talent spend

A third of businesses want to expand their customer base (33%) and grow their current products and services (29%) in 2023, while also reducing costs to combat the cost-of-living crisis (30%).

To reach their goals, business leaders plan to invest in their online presence. One in four SMEs (26%) will put money into improving or building websites and apps over the next year. This is in addition to investing in digital marketing (24%).

Interestingly, following the ‘Great Resignation’ fears that saw SME-leaders prioritise talent spend in 2022, talent acquisition and increases to employee salary and benefits are likely to see the least investment (17% each respectively) over the next year.

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Business leaders continue to put hands in their own pockets to invest

SMEs will often turn to business savings (27%) or various forms of business finance (e.g., asset finance – 11%) to meet their goals. However, nearly two out of five SMEs (18%) will turn to their personal savings and over one in ten will use their own overdraft (12%) to meet business costs.

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Barriers to growth

Despite optimistic plans to invest heavily in the coming year, the biggest concerns SMEs are faced with are high energy costs (24%) and double-digit inflation rises (24%). This will represent the biggest barrier to business growth in 2023.

Those concerned about inflation costs estimate it could lead to delays in existing projects (19%), missed opportunities for growth (21%), and difficulties securing new deals (20%).

Tim Boag (pictured), group managing director of business finance at Aldermore said: “SMEs are the backbone of our business community and their ambitious growth plans over the next year bodes well for the economy, however they also face challenges brought about by high inflation and soaring energy costs.

“At Aldermore, we’ve supported SMEs through challenging times. It’s great to see from their plans that a digital presence for many has become a major priority, as consumer expectations have evolved post-pandemic.

“For business leaders, there are many sources of investment, be it utilising savings or accessing a range of specialist finance products; and at Aldermore we remain fully committed to backing businesses to realise their ambitions.”

By Lisa Laverick

Source: Asset Finance International

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Asset Finance Guide for Suppliers: Make Life Easier for You & Your Customers with the Right Asset Finance Solution

Asset finance is a vital finance tool for businesses that can’t afford to invest upfront in essential equipment and machinery. If you are a supplier, offering the right asset finance solution can help you onboard a significantly higher number of customers.

Keeping aside all the business and marketing jargon like ‘cutting-edge’ and ‘state-of-the-art’, it shouldn’t be too hard to see why businesses are constantly in a need to buy or lease newer, better, more efficient equipment, machinery and even software.

This need typically stems from two reasons:

  1. To stay relevant. When all your competitors are moving ahead of the curve, you are forced to take desperate measures to catch up. This isn’t an ideal way to look at things from the business perspective, but it is the cold, harsh reality. We can go so far as to say that many businesses find themselves going for newer assets that they wouldn’t really need if it weren’t for the competition.
  2. To add to the top line. In other cases, buying or leasing assets is a genuine need to maintain, sustain and improve operations. Businesses estimate that the costs of onboarding an asset will compensate themselves through better performance, productivity and/or efficiency, adding more strength to their top line.

Regardless of the reasons, the only thing suppliers need to know and understand that there is and will always be a steady demand for assets (so long as your business is on the right side of technology, trends and market forces). Despite this factor being in their favour, many suppliers and vendors end up performing poorly – thanks in no small part to their inability to look after customers’ needs.

Asset finance solves this problem.

What Is Asset Finance?

Every business knows this very well – it’s much easier to finance products and services than getting cash loans.

This applies even more strongly to small partnerships and sole traders. Getting a personal loan from a high-street lender and diverting the funds towards buying or leasing an equipment they sorely need is a tough task. It not only puts their personal credit on the line, it also means that they end up closing doors on their business should the need to borrow more arise in future.

So, quite predictably, it’s very common to see businesses that are stuck between the proverbial rock and a hard place – the need to have an asset on board and the inability to pay for it.

As a supplier or vendor, this doesn’t bode well for you. You can’t just turn down prospects after prospects just because there’s no workable financing solution to make the transaction happen.

“Even though it’s true that SME loan acceptance rates are promising, businesses will take every opportunity to spread their purchases without touching the cashflow. If you offer your customers a customised asset finance solution through a reliable, market-leading broker like Commercial Finance Network, you can bring down the biggest conversion and sales barrier for your business.”

How Does Asset Finance Help Your Customers?

Before understanding how asset finance helps suppliers and vendors, let’s quickly take a look at why it is so popular among businesses (your customers).

It’s Easy.

It’s much easier for businesses to secure asset finance than getting a business loan. Asset finance is usually tied to the asset being bought or leased, and, in a way, is secured. This allows lenders to be more lenient while assessing asset finance applications.

It’s Flexible.

Asset finance is among the most flexible commercial finance solutions out there. Depending upon the type of asset finance chosen, the borrower can choose the interest-only model or the flexible monthly instalment model for repayment. While leasing the asset, there are usually little to no upfront costs involved for the lessee.

Commercial Finance Network offers some of the most flexible asset finance partnerships to suppliers and vendors. Based on the nature of the asset and the requirements of the borrower, we may be able to extend partial or full finance, customised repayment schedules (including a possibility to introduce repayment holidays) and some of the lowest interest rates going around.

It Makes More Sense.

By not paying the cost of the equipment or machinery (or any other asset, for that matter), the borrower can make sure that their cashflow isn’t hurt. They get to enjoy the benefits of having the asset on board without sacrificing their working capital – a win-win on most counts.

It’s Cheaper.

Buying or leasing assets, in most cases, is tax deductible for businesses. Through Annual Investment Allowance (AIA), businesses can claim tax relief to the tune of qualifying asset expenditure, adding a huge incentive for asset acquisition.

The good news is, the HMRC has temporarily increased the AIA limit from £200,000 to £1,000,000 for two accounting years (starting 01/01/2019).

Find out here if your customers can claim AIA for the assets on your inventory.

How Does Asset Finance Help You, As a Supplier/Vendor?

Being a supplier or a vendor means that you get to work with a variety of businesses. Let’s just assume that you turn down a significant fraction of leads because there is no feasible financing solution available for the customer to finalise the agreement.

In that case, the easiest way to calculate the impact of an asset finance partnership on your bottom line is this:

Let’s say you generate a net profit of £5,000 per sale and £900 per lease.

You generate 2,000 leads per month, with a conversion rate of 1% (in sales) and 1% (in leases). That means you generate profits to the tune of £118,000 per month. If you turn down 0.1% of leads just because the customer isn’t able to secure a good asset finance package, that adds up to £11,800 per month in lost profits!

By forming a no-obligations partnership with a responsible, industry-leading whole of market broker like Commercial Finance Network, you can boost your sales significantly, without incurring any charges. To know more or to request a call back from our asset finance experts, please get in touch with us.

Here are other reasons for suppliers and vendors to offer asset finance to their customers:

It Frees Up Your Money

If you are a supplier, here’s what a typical cash cycle may look like for you:

  1. You purchase an asset from the vendor (day 0).
  2. You pay the vendor within two weeks (money out by day 30, you’re cashflow negative with an asset on your books).
  3. The customer agrees to purchase the asset from you on day 40. The asset is immediately moved off your books.
  4. You’ll still be cashflow negative for the next 30 days.
  5. On day 70, you finally receive the payment for the asset. You book profits and you’re cashflow positive.

Alternative, if your customer had an asset finance solution to facilitate the transaction, this is what happens:

  1. You purchase an asset from the vendor (day 0).
  2. You pay the vendor within two weeks (money out by day 30, you’re cashflow negative with an asset on your books).
  3. The customer agrees to purchase the asset from you on day 40. The asset is immediately moved off your books.
  4. The transaction is complete within 2-5 days.
  5. You book the profits no later than day 45. You’re cashflow-positive.

So, essentially, asset finance significantly improves your cashflow cycle in your favour (from 70 days to 45 days, in this case).

It Removes the Most Common Conversion Barrier.

Investing heavily in an asset is never an easy decision for your customers – especially if they are small businesses.

You can be sure that they are looking around for better deals even when the negotiations are on with you. In such cases, if they can get an affordable asset finance quote, it can be the decisive factor in your favour.

It Doesn’t Cost You Anything.

Forming an asset finance partnership with Commercial Finance Network means you will only be directing your customers to us. Your receivables will be fast-tracked directly to you, without you having to bear any extra costs.

Types of Asset Finance Your Customers Can Avail

  • Hire Purchase
  • Finance Lease
  • Operating Lease

Asset Finance Makes Life Easier for You and Your Customers

As a B2B, you’re going to have to take every measure to improve the conversion rates on all fronts. If you don’t close your customers, your competitors definitely will.

To know more about how Commercial Finance Network’s end-to-end asset finance services help your customers (and – in turn – you), do visit our asset finance page.

Help yourself by helping your customers. Contact us today to request a free asset finance partnership proposal!

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Why open banking creates a new landscape for asset finance

A new era in finance starts this weekend as the deadline passes for major banks to comply with new open banking legislation that promises to revolutionise consumer and business funding.

In truth, the revolution has started with a whimper rather than a bang, as many of the major banks have secured an extension beyond the January 13 deadline for the new regulations, but over the long-term, it has the potential to change how businesses and consumers source finance.

Open banking is a general term that describes two pieces of regulation: the Competition and Market Authority’s ‘Open Banking Remedy’ and the European Second Payment Services Directive (PSD2).

It requires banks to provide access to current account data to third-parties if customers give their consent.

Through open Application Programming Interfaces, banks can share data with third parties in a secure manner, without customers having to make their usernames and passwords public.

APIs are already commonly used in a range of business environments, such as insurance companies automatically retrieving vehicle data from government databases to speed up the quotation process.

Open banking carries more risks, as companies will be delving into financial data of consumers and businesses, so security is paramount, hence the request for more time from some banks.

Every company using open banking to deliver their services has to be authorised by the Financial Conduct Authority (FCA) or another European regulator.

Gavin Littlejohn, chair of fintech industry body The Financial Data and Technology Association (FDATA) and fintech representative to the UK’s Open Banking Implementation Entity (OBIE), said: “Our industry has offered services that let customers – around two million at the last count – give our member firms direct access to their accounts for several years.

“However, the method we have had to use, which literally ‘reads’ customers’ online banking screens, has never been what we would have chosen.

“We are enthusiastic about the potential of open banking, which provides a direct feed into and out of accounts using tried and tested and highly secure standardised communications technologies.

“There is a lot of work still to do to bring the full benefits of open banking to UK consumers and businesses, and we now need to work closely with colleagues in Europe to align this solution to the standards being worked on there, but this is a momentous milestone.”

Auto finance provides a good example of how APIs and open banking could change finance transactions.

Often requests for finance require substantial amounts of paperwork and scanned or printed documents from bank accounts, which all takes time to review and process.

Under open banking, APIs can make customer financial data available for immediate analysis by the finance provider, enabling in-depth reviews of their financial status to confirm affordability and support compliant sales processes in seconds.

In addition, aftersales functions such as a change of address, or a request to adjust the terms of a loan, can be carried out more quickly.

The use of APIs means that finance providers can plug this new data source into their existing systems to transform application processes.

Rob Haslingden, head of product marketing and propositions at Experian, said: “The additional data can be used on top of credit risk data to give an overall view of affordability.

“So, under open banking, the API can give up to 12 months of transactional data to reveal discretionary spending as well as regular bill payments. This can then be interrogated to iron out things like one-off payments or seasonal variations and you get an overall view of affordability rather than just credit risk – which is more for the lender than the customer.”

Therefore, APIs can take finance beyond credit scores and make the experience more personal to each customer, while also minimising risk by giving a clear picture of someone’s true financial position.

It is also important in a customer experience context too, as it potentially saves customers from being asked in-depth questions about their finances on a face-to-face basis – something that many find awkward.

Continual sharing of data will allow for better loan management.

Gareth Lodge, analyst at Celent, said: “Product providers can see how much an existing loan is, what the term left is, the rate of interest and penalties etc., and therefore potentially be able to intervene before a loan reaches term to start the conversation about renewal or other appropriate steps.

“Product manufacturers will be able to use data to hone their offering, assess affordability, improve their general service and add value via better and faster risk modelling technology at their own back-end.”

Richard Ryan, partner at Invigors, added: “Companies involved in asset finance and leasing are now seeking revenues that extend beyond just making a percentage on a loan. They are looking to use data to provide value-added services that can be effectively monetised and therefore add to the bottom line.”

While lenders will benefit because they can provide a more personal service and swift finance agreements, the use of open APIs is likely to increase competition as aggregation services step into the space between the customer and the finance company.

For example, rather than customers being offered a generic finance quote for their next car, they could receive personalised quotes from a panel of lenders in real-time.

However, this may be a key step in ensuring customers receive the service they have come to expect in many other industry sectors.

The flow of data via APIs makes for easier and better decision-making by asset finance providers.

Steve Taplin, global sales and marketing director at Alfa, said: “Allowing data to flow between customer, dealer and finance provider makes for better automation and therefore service – which leads to retention and loyalty.”

James Tew, CEO of finance platform iVendi, added: “If a dealer can key in information once but then access a number of lenders, track the process and see the likelihood of a deal being accepted all via an app that sits on their website, then that adds value to them.”

In the US, Capital One has built an open API platform to enhance the auto financing experience, which is being used by Vroom, an online direct car retailer that allows customers to order a car on their computer and have it delivered to their home.

Shishir Singhania, from Capital One, said: “The API allows consumers to get the loan for the vehicle while sitting on the computer at their house, versus having to go offline and talk to someone. That is a unique experience.

“That provides a layer of transparency to our consumers that they never had before because they had to talk to an F&I manager in a store and work with them to find out what the terms of the loan would be.

“When the customer is buying a car, they are trying to figure out the rate they need to pay, what their monthly payments would be and they want to have the flexibility of changing certain things in the loan. The API can answer those questions in a pretty seamless way while they are on Vroom’s site.

“It is very sophisticated to give consumers the answers they need, but as a consumer, it is very simple.”

APIs are also being used by finance providers in other ways to help improve the customer experience.

Black Horse Finance is in the middle of a phased rollout of open APIs.

The first one, which is already in use, allows the customer to get a settlement figure.

Jim McCaffrey, director of customer propositions and business enablement at Black Horse Finance, said: “Getting a settlement figure is a high-volume request that is relatively straightforward to fulfil. It’s acted as a proof of concept but now the plan is to extend the range of services and partners so things like quotes, credit decisions, figures for future value as well as aftersales service will all be available.”

Whatever the platform, the success of the open banking system in delivering a better customer experience in auto and equipment finance will be reliant on the customer being willing to share their data in the first place.

Research from Accenture in October 2017 said that two-thirds of consumers in the UK would not share their financial data with third-party providers such as online retailers, tech firms and social media companies.

More than half (53%) said they will never change their existing banking habits and adopt open banking.

It is likely that patience will be required to give consumers time to assess the idea of data sharing in return for better service.

Taplin said: “Of course there is concern, but customers have already given their data to the asset finance provider in order to transact with them – there need to be clear rules that are understood and here standardisation does come into play.”

Haslingden added: “If consent is given then providers can build that data into their lending processes and make operational gains and provide a better customer experience. But they will need to position the advantages of data sharing to customers very well in the first place.”

Source: Asset Finance International