UK SMEs: how asset finance is navigating economic challenges

Credit: Melinda Nagy / Shutterstock

W​​​​​​​e know SMEs are the bedrock of the UK’s economy, powering innovation, generating employment opportunities and supporting local development. However, as any SME owner will know, a sustained period of volatile interest rates, muted economic growth and higher costs of doing business, means their work has been cut out for them. 

At the time of writing this article, the new Government has yet to announce specific policies to support the growth of the vital SME economy which makes up 99% of British business. But as the lending landscape evolves, as an industry, how can challenge the current perceptions around the needs of businesses, and the finance options available to meet them? 

At Grenke, we commissioned our much-heralded Lease of Life report which examined the current state of SME financing in the UK and to gain a better understanding of how companies of this size approach their critical financial decisions. At the same time, the report assesses the impact that alternative finance and in particular leasing, has on both SMEs and the wider UK economy. 

We conducted our survey with over 600 UK SMEs. What did we discover?  That a fundamental lack of understanding of the financing options available for businesses is holding them back from scaling in line with their ambitions. 

Whilst 66% of respondents surveyed have considered using Asset Finance (Leasing), only 4% had followed this route. Where businesses decided against it, one in 10 attributed this to not having access to sufficient information about it. 

Alarmingly, our report also found a reliance on credit cards as a primary type of finance, with over half using credit cards to make purchases for their business during the last 12 to 18 months. Small businesses are the most likely to have used them, with those in the 10 to 49 employees category being the highest at nearly two-thirds. Over and above credit cards, the forms of finance favoured include business overdrafts and business loans (39%) and government loans (33%). Interestingly 12% haven’t used any form of finance over the last 12 to 18 months, a quarter of which are micro-businesses (those with 1 to 9 employees). 

Within the leasing industry, we understand the benefits that leasing brings to individual SME and their people, but also to the broader UK economy, vitally, as a catalyst for growth. 

Let’s take the macro level first. Grenke’s Lease of Life further found that Leasing boosts Gross Value Added (GVA) to the economy by an estimated £949 million per annum (2021 prices) and supports around 15,400 jobs. 

We also wanted to drill down into the specific benefits for SMEs, and how Leasing plays a critical role in their business. Significantly, our findings show that increased flexibility and avoiding tying up capital was key, alongside better budgeting for required equipment. Of the 600 SME owners and decision-makers we spoke to: 

• 28% said it avoids capital expenditure on equipment 
• 28% said it helps budget for equipment when it’s needed 
• 24% said it helps manage business cash flow 

Grenke’s report found that despite a significant number of UK SMEs using leasing, there is a still a significant proportion who don’t, particularly micro-businesses. As a business – and an industry – our focus must be on raising awareness, understanding and confidence around the tangible commercial benefits that equipment leasing can unlock. 

These range from cash preserves, budgeting and reducing maintenance costs through to accessing higher spec equipment, equipment upgrades and supporting sustainability (a core challenge for SMEs). 

There’s no doubt that leasing makes a positive contribution to the UK’s economy. From our research – and daily conversations with our partners –  we know that if more UK SMEs were to choose it as a finance option, they could unlock new growth opportunities, enhance their technological capabilities, and future-proof their businesses as well as operate more efficiently, productively and, of course, profitably.