How Asset Finance can help support recovery
Read time: 10 mins
Alan MacRae, Broker Director, Lloyds Bank Commercial Finance, discusses how Asset Finance can help businesses make the most of incentives to invest as we move towards recovery.
As businesses reopen and rebuild following the lifting of Covid-19 restrictions many are looking for finance options which can help support recovery and future growth. Asset Finance offers a real opportunity for businesses with a desire to invest in plant, machinery and other assets while maintaining their cash reserves.
We’ve seen applications for Asset Finance rise significantly in recent months, driven by pent-up investment demand over the past year and a half and the introduction of government support measures designed to boost investment, including the Super Deduction and the temporary increase to the Annual Investment Allowance (AIA).
Incentives to invest
The Capital Allowance measures announced as part of the 2021 Budget are a fantastic incentive for businesses. The Super Deduction means companies can claim 130% capital allowances on any qualifying plant and machinery investments, including solar panels, vehicles, computer kit, refrigeration units and office equipment, until the end of March 2023, which, put simply, allows them to cut their tax bill by up to 25p for every £1 they invest. The AIA has also been adjusted to provide 100% relief for plant and machinery investments up to £1 million until 31 December 2021.
Using Asset Finance to make investments means businesses not only benefit from the Super Deduction and AIA increase, they can also spread their repayments over an extended period, allowing them to maintain their cash position. Interest rates are currently incredibly low so there are some very attractive fixed-rate products available too.
Against the current uncertain economic backdrop, not having to outlay significant sums but still being able to make the investments you need to grow your business and make the most of the incentives available is a huge bonus. In some sectors, businesses have heavily relied on government-backed borrowing via the Coronavirus Business Interruption Loan Scheme (CBILS) or the Bounce Back Loan Scheme (BBLS) to see them through the past 18 months, so are understandably cautious about taking on more debt.
With Asset Finance, in the vast majority of cases, the asset itself provides the security for the borrowing, and, if the asset is revenue generating, it hopefully pays for itself over the course of the repayment period.
Making the most of the Super Deduction
The main challenge for businesses looking to make the most of the Super Deduction and accelerate their capital expenditure is availability of assets. A lot has gone on over the last 18 months which has impacted supply chains. The economic landscape has changed, and continues to evolve, but our commitment to supporting our Brokers and their clients buying plans remains central to our strategy. We want to work together as we all look to navigate our way in this new economic landscape.
Another challenge is that credit is tightening across the whole market. Businesses may find they face more robust checking processes, but there remains a real appetite among Asset Finance providers to support businesses through this recovery phase. Again, planning is key and those that are able to share up-to-date information and solid forecasts are in the best position to capitalise on the current opportunities within the Asset Finance market.
Supporting through recovery
As part of our efforts to support businesses through the recovery period, we’ve made a number of changes to our Asset Finance offering to make things easier for brokers and their clients.
During lockdown we accelerated our digital proposition and now almost 50% of proposals are submitted to us online. This frees up our capacity internally, allowing us to process applications quicker and reduce our time to payment, as well as enabling the team to offer a greater level of support on more complex cases. There’s currently a lot of work going on in the background to see how we can take this to the next level – can we do automated underwriting, for example? Can we do documentation printing? We’re assessing what changes would bring the greatest benefits to our customers.
We’ve also launched our new Commercial Banking Intermediaries team which brings together all our colleagues who specialise in intermediary sales – including Asset Finance, Invoice Finance, Card Acquiring and Term Lending.
Uniting all these products under one proposition means we can make it much easier to do business with us as well as being able to create joined up solutions that benefit both our intermediaries and our clients.
As the economy reopens, we’re definitely seeing greater demand and we have the appetite and expertise to help businesses make the most of this recovery phase.