Bank lending to leasing companies recovering

Bank lending to leasing companies has jumped 17% during the past 18 months, recovering from a slump that began at the start of the recession.

New data from independent finance provider Syscap found that outstanding bank loans to leasing companies stood at £27.2bn in August 2012, up from a 20-year low of £23.2bn in May 2011.

During the same period, bank lending to all businesses fell 5%, from £438.7bn in May 2011 to £417.1bn at the end of August 2012.

Syscap explains that demand for leasing is on the rise, with businesses increasingly turning to leasing rather than using traditional bank loans or overdraft facilities.

Many businesses have expressed their concern that traditional credit facilities, such as overdrafts, can be withdrawn at almost no notice. Even long-term loans can be withdrawn from businesses if the company’s turnover or profitability falls below a level set by the bank. Lease finance, however, stays in place just as long as the business is able to make its payments.

Philip White, CEO of Syscap, said: “Leasing has become the funding source of choice for many solid small businesses, offering a more secure way of funding investment or expansion than traditional bank loans or overdrafts. It is a vital source of funding for businesses that want to invest in new assets such as machinery and IT.

“It’s great to see that banks are responding to this demand by providing more finance to businesses through the leasing sector.”

Unpaid Bills on the increase for SMEs

Unpaid bills to SME businesses are now at the highest level (£35.3 billion) in almost five years, according to Bacs, with combined debts up by almost £2 billion compared to the first half of last year.
Bacs found that the average amount owed to small businesses stood at £45,000 at the end of 2011, up from £39,000 earlier in the year.
Additionally the average company is waiting 29.5 days longer than agreed payment terms to have their invoices settled, and that figure is also up, rising from 28 days reported in the first half of 2011. With large businesses insisting on payment terms of as much as 120 days, many suppliers could be waiting up to five months to be paid for work.
There’s an old saying that ‘a sale is not a sale until it is paid for’. This statement, amplified by the findings of the above research, serve to underline one of the biggest problems for SMEs – getting paid on time.
The quicker you can get paid in the current unforgiving environment, the better your cash flow and your business performance.

Islamic Finance

Islamic finance is a market worth over £ 1 trillion and UK banks are keen to break into this marketplace.

Sharia finance is derived from the religious text of the Koran. It follows three basic rules:

·         Devout Muslims must not be involved with markets that are considered sinful, such as gambling, alcohol, tobacco, arms, cinema, pornography or anything to do with pig meat.

·         They must avoid taking risks, such as investing in hedge funds and spread betting

·         It bans the payment of interest. In other words you are not allowed to create money by money. This rule makes it hard to use Western banking products such as loans, mortgages and savings accounts.

Trading and investing for profit is permitted, but on the basis of partnership, in which the risk and profit are shared between two parties. This means that if you put money into accounts in Islamic  banks you do not earn interest but you earn a profit share in the activities of the bank. If you want a loan to buy a car you are not given a loan, the bank buys the car for you at an agreed price.

Buying a house has often been a major problem so one way to achieve this is for the Bank to buy the property and lease it back over a 25 year period, without charging interest and then selling it at an agreed price to the occupier.

You would think that as Sharia banks could not invest in risky loans that they might have escaped the financial crisis, but you have to remember that they did invest, as described above, in property and so they were not immune, but due to their main geographical market areas they were much better off than Western banks.

Western banks are increasingly taking an interest in this market. Citigroup, HSBC, Lloyds, TSB, RBS, Barclays, Bank of Ireland, Standard Life and UBS are all now offering Sharia compliant products.

The Bank of London and the Middle East and the Islamic Bank of Britain offer some of the best rates of return available, but you do not earn interest. Instead they act as your ‘agent’ in making Sharia-compliant investments; they will monitor the deposit to ensure the agreed profit rate is met.

The Islamic Bank of Britain has had a significant impact on the UK and European financial industry.  The Bank was authorised by the UK’s Financial Services Authority in 2004 and is the UK’s only wholly Shariah-compliant retail bank.  The Bank has continued to maintain this position and still remains the only Islamic retail bank in the UK and Europe.  It is considered a pioneer of retail Islamic banking and currently offers the largest range of Shariah-compliant retail financial products to the UK consumer.

The UK was the first member of the EU to authorise Islamic Banks, as a result, according to the CityUK Islamic Finance 2011 report, there are 22 banks in the UK offering Islamic finance products.  This figure exceeds that of any other Western country. There were five Sukuk (Islamic bond) listings at the London Stock Exchange (LSE) in 2010 and one in early 2011.  This brings the aggregate total at the LSE to 31 listings worth $19 billion. Islamic funds managed in the UK have combined assets of $300 million.

Islamic banking is now well established in the UK and is worth considering even if you are not a Muslim but are interested in a more ethical method of banking.