2016 was a much better year for the UK economy than predicted by many economists. The year ended on a high note, with a trend growth rate higher than the 1.8% achieved for the year as a whole.
A growth rate of 2% is considered to be about the maximum sustainable for a mature economy such as our own. Despite concerns about the level of personal credit and an over-reliance on private consumption, the UK had a good year.
The Finance and Leasing Association (FLA) recently released a large amount of information about the contribution leasing made to the overall performance of the economy. The most significant statistic is that of all capital investment made by UK businesses in 2016 32.9% was through an asset finance agreement. This is the highest ‘market share’ since 2008 and leasing by businesses has now grown for six consecutive years.
So far as 2016 is concerned the total amount of leasing business transacted was just above £30bn, a 5% increase on the previous year. So with an economy growing by just under 2%, a 5% growth in leasing illustrates the growing popularity of this method of acquiring capital equipment.
Why is leasing growing in popularity? The answers are many but probably prominent amongst them is that the whole concept of paying for the use of equipment rather than owning it has been gathering real traction over recent years. As evidence, one only has to look at how we acquire mobile phones and increasingly cars, music and software. We now live in a subscription economy. Behind the bigger picture, leasing companies have been busy developing finance products tailor-made for the markets in which they operate. It is interesting to note that within the overall headline growth in business leasing, activity was particularly strong in the agricultural and construction markets and this trend has continued in to 2017.
Light commercial vehicles represent another market where both overall sales and the number of units acquired on lease grew rapidly in 2016. A comprehensive range of finance products are available to businesses acquiring vans, but the growth in the number of self-employed contractors whose turnover is below the VAT registration threshold has encouraged the use of ‘finance lease’. Unlike outright purchase and ‘hire purchase’ the fact that ‘finance lease’ does not entail the customer having to pay 20% of the vehicle cost upon taking delivery is a very important factor where VAT cannot be recovered.
The leasing industry will continue to provide the products that facilitate business investment and this will prove particularly important as the UK faces the challenge of increasing its productivity for the years ahead.
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.