The Mail on Sunday

Leasing will fix ‘Rusting

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THE prospects for recovery and growth of many small firms are being put at risk because of problems in replacing equipment.

Research carried out for the Finance and Leasing Associatio­n shows that business investment fell by 27 per cent between April 2008 and the end of last December as the recession took its toll.

Nearly a fifth of small business owners say they have not been able to replace operating equipment while six per cent report that this is posing a risk to the success of their business.

Manufactur­ing has been hit hardest, with a quarter of all firms in the sector saying they have been unable to replace equipment.

The reasons for firms being unable or unwilling to invest range from poor cash flow or lack of internal reserves to uncertaint­y over growth and the increased cost of new equipment combined with the difficulty in accessing finance.

Julian Rose, the head of asset finance at the FLA, says there is a risk that firms will not have the right capital equipment in place to meet increased demand when the economy recovers. This in turn could leave Britain trailing other countries in competitiv­eness.

‘The fall in expenditur­e on business equipment is far worse than during both of the last recessions,’ he says.

‘This suggests that firms are taking longer to replace capital equipment at a time when the service life of many assets tends to be shorter than before, for example machinery becoming obsolete more quickly.

‘With technology advancing so quickly, many firms may be left with outdated equipment that could badly affect their competitiv­eness.’

Although Chancellor Alistair Darling warned last week that the Government would fine banks that failed to lend enough to viable businesses, the FLA believes that lease finance may be worth considerin­g for firms struggling to access capital.

In response to the figures showing a sharp fall in business investment, the FLA is launching a campaign called Rusting Britain.

It aims to lobby the Government for more fiscal incentives for business investment and hopes to encourage small firms to invest in their businesses, in part through leasing.

Research by forecastin­g consultanc­y Oxford Economics suggests that if leasing was used to finance £5 billion of business investment in 2010 it could contribute nearly £2 billion to gross domestic product and lead to the creation of almost 40,000 jobs.

Asset finance, which includes leasing and hire purchase and is typically provided by leasing firms, manufactur­ers, brokers and banks, is used to fund nearly 30 per cent of business capital

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