By Marcus Leach

Banks have reduced their lending to leasing companies by 16% in the last year, bringing outstanding loans down to £23.8billion (as of March 31 2011) compared to £28.4billion a year ago says Syscap.

Leasing companies are a vital source of funding for businesses that want to invest in business assets such as machinery and IT.

“The leasing market is key to the funding of small to medium sized businesses (SMEs) especially while banks are still unwilling to make conventional loans to smaller companies," said Philip White, CEO of Syscap.

“Unfortunately some independent leasing companies are struggling to get the funding from banks that they can pass on to business borrowers.”

White says that the trend for banks to reduce their lending to the independent leasing companies might have a very negative impact on the competitiveness of UK companies.

“If existing leases are coming to an end far faster than new leases are being funded then that suggests that UK businesses are having to struggle on with old or redundant machinery or IT and are not expanding their operations," he said.

“UK businesses can’t compete effectively in a globalised market if that is happening.”

Lending to leasing companies has fallen at a far faster rate than overall lending to private businesses (excluding financial services companies) where outstanding loans are down 10% in a year to £535.7billion (as of March 31 2011) compared to £581.7billion a year ago.

At the same time as banks reduce their lending through independent leasing companies, banks themselves are reducing their provision of leasing direct to SMEs. For example, in February of this year Barclays confirmed that it would cease offering leasing to small businesses.

Bank lending to leasing companies is now down by 35% on its level three years ago of £602billion (March 31 2008).

According to Syscap, leasing is a crucial source of funding for SMEs as it helps spread the cost of assets and maintain a healthy cash flow.

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