By Marie Dunkley, Head of Sales, Hitachi Capital Business Finance
With some companies experiencing lower profits, pressure on margins and cash flow issues in the past couple of years, it is not surprising to see companies spreading the cost of investment over a known and budgeted period of time. During boom times they may well have simply reached for the cheque book to fund a planned investment programme or equipment replacement. However, the purchasing of new equipment has significantly dropped in the past year with spending confidence only just starting to recover as we enter 2011.
The recession has driven many businesses to review their current repeat purchase and leasing plans. Like buying a car, business materials and equipment require constant maintenance and the older something gets, the more it costs to maintain. However, unless there is a dramatic innovation that can improve the running of a business, why should firms repeatedly open the cheque book? In the past, finance providers had always dictated that equipment should be reviewed every five years and renewed if needed. This is set to change, with the market now pushing these business decisions to run in parallel with the financial forecasting. This trend is now driving finance providers to deliver tailored offerings, creating more affordable purchase and leasing plans.
The current economic climate has lead businesses to look at alternative plans when reviewing the maintenance and replacement of equipment, with leasing becoming an increasingly attractive option. Even firms that are cash rich are turning to short term and long term lending options, instead of purchasing equipment, as more cost effective decisions need to be made. On the whole, businesses are budgeting better and revaluating balance sheets to accommodate a mix of funding options, which presents asset finance as a quite safe option.
As the market picks up, it is important that finance providers work closely with key decision makers to understand the specific needs of the business. In 2011, businesses will require finance to renew equipment and it is important that lenders are flexible in their approach to provide customised schemes that cater for both existing and new customers. Lenders need to be more than just finance houses, building relationships with customers to provide suitable options. In building strong, long lasting ties with customers, lenders must use their knowledge and experience of the market to understand the needs and requirements of each customer’s perspectives.
Despite economic confidence set to improve in the New Year, businesses will still need to be encouraged to take on lending as a cost effective option. Finance providers need to bear in mind that customers need motivation if they are to consider both short and long term lending schemes.