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Corporates give up waiting for banks and start lending themselves


10/06/2012

By Daniel Hunter

Businesses across the manufacturing sector are increasingly using their balance sheet strength to lend directly to customers says LPM Outsourcing, the leading provider of services to the asset finance market.

LPM Outsourcing (LPMO) says larger manufacturers are now developing their business by setting up “captives” to fund their customers’ purchases of the goods they produce.

A rising number of manufacturers are doing this because many of their small and medium sized business customers can’t access the bank funding they would normally get to make these purchases.

“A lot of large corporates have spent the recession reducing debt and hoarding cash — so they have strong balance sheets whilst the banks don’t," Ian Dennis of LPMO said.

"These manufacturers want to keep driving sales to their customers who, despite being perfectly good credits, just can’t get loans from their usual banks.

“It is a win — win situation. The big manufacturers get to make more sales and the smaller businesses can make essential investments in business assets like plant, machinery and computers that they wouldn’t otherwise be able to afford.

“It is helping smaller businesses to make capital investment and expand by using all that cash that has built up on the balance sheets of the biggest corporates that might otherwise be sitting there idly making next to zero interest.”

The ITEM Club estimates that UK companies are sitting on some £754billion in cash, which is around 50% of total UK GDP.

Ian Dennis says that a growing number of the bigger manufacturers set up “captives” where the lending decisions can be made independently from the sales team who are selling the products.

These captives will also look to make a profit on the funding that they provide — which should more than outweigh the credit risk that they are taking on.

“As the banks aren’t in a... continued on page two >

 

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