By Marcus Leach

Businesses continue to increase the amount of money they lend to their customers to help then complete sales says Syscap, the independent finance provider.

Data from the Finance & Leasing Association (FLA) shows that the amount of money provided for vendor finance jumped 19% in the last six months (to end of July 2011) to £2.6 billion, up from £2.1billion in the same period last year.

Syscap says that companies are offering their customers higher levels of vendor finance to make up for the shortage of bank lending to businesses, especially small to medium sized enterprises (SMEs).

Overall new business finance provided through asset finance increased by a much more modest 2.6% to £10.4 billion in the last six months up from £10.2billion in the same period last year.

“More businesses are turning to vendor finance as a way of completing a sale that wouldn’t otherwise happen,” Philip White, CEO, of Syscap said.

“It is a pretty simple process — you lend your customer the money to buy the machinery or IT they need and keep security over those assets.

“Businesses are nervous about the economy so they don’t want to buy business assets with their cash. SMEs don’t want to borrow more from their bank and banks don’t want to lend. Vendor finance helps deal with all those problems.

“If businesses can’t get the funding to keep up capital investment then the UK economy will lose more and more business to overseas competitors — so vendor finance is playing a really important role. For the UK’s manufacturing sector this sales finance can be a vital tool.”

Whilst some of the very biggest manufacturers will supply funding direct to their customers most will do so through a specialised finance house that will undertake a credit check of the customer, take on the credit risk and deal with the administration work.

“If the Government cannot get the big banks to lend to SMEs they ought to look at how they can help independent finance providers lend more to SMEs though products like vendor finance,” White continued.

“The Government ought to see what it can do to encourage these other increasingly popular, alternative finance tools.”

Whilst some parts of the asset finance market have been impacted by the reduction of wholesale funding by banks some non-bank asset finance providers are in a better position to lend than some banks.

A total of £4.7billion in vendor finance has been supplied over the last year (to end July 2011).

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