By Max Clarke

Write-offs of bad debts by UK banks unexpectedly rose another 8% in 2010 to a record £17.3 billion, up from £16.1 billion in 2009, says independent finance providers, Syscap.

With banks continuing to suffer such hits to their balance sheets, small businesses should not expect a rebound in overall levels of traditional lending by the banks anytime soon.

This is in spite of the coalition's Project Merlin and Enterprise Finance Guarantee agreement with leading banks intended to make credit more available to Britain's small businesses in order to stimulate the recovery.

The increase in write-offs was partly driven by increased bad credit card debts which rose by 29% in 2010 to £5.32 billion, up from £4.12 billion in 2009.

"With bank lending weakened by bad debts, SMEs (small-medium sized enterprises) will have to explore other forms of finance such as leasing," commented Syscap’s CEO, Philip White.

"SMEs that are looking to expand, create jobs and invest are going to continue to find getting a conventional loan from a bank a hard slog."

"Businesses,” continued White, “will find it far easier to raise capital investment by securing funds against that asset through leasing rather than by getting a normal loan," as leasing is much less of a drain on a bank's balance sheet than conventional lending.

According to the FLA (Finance & Leasing Association), total asset finance provided to businesses in the last three months (to Feb 2011) has increased by 20% to £5.1 billion, up from £4.27 billion in the same period last year.

Philip White says that SMEs should make more use of leasing, not just because it is currently a more readily available form of finance, but also because it has a number of advantages to SMEs over conventional loans.

Explains White: "Funding raised through leasing does not impact on a businesses' credit lines. That will give the company more headroom to borrow additional funds when they need it in the future. Most leasing arrangements, unlike loans, do not have a negative impact on a balance sheet."

"The other advantage of leasing is that you can upgrade that equipment when it becomes obsolete. You can't do that if you have used up your limited credit with a bank to buy the equipment outright."