SMEs face tighter leasing market as banks hold off

Bank lending to small and medium-sized enterprises (SMEs) via leasing companies is still down by a third on pre-recession levels, research out today suggests.

Banks have reduced their lending to leasing companies by almost 20 per cent in the past year, bringing outstanding loans down to £23.8bn from £28.4bn a year ago, according to Syscap, an independent finance provider.

Leasing companies are a vital source of funding for businesses that want to invest in assets such as machinery and information technology. Philip White, the chief executive of Syscap, said: "The leasing market is key to the funding of SMEs, especially while banks are still unwilling to make conventional loans to smaller companies.

"Unfortunately, some independent leasing companies are struggling to get the funding from banks that they can pass on to business borrowers."

The news comes as pressure increases on banks to honour the spirit of their "Project Merlin" promises to lend. In February, the leading five British banks committed themselves to making £190bn of credit available to businesses throughout 2011, with £76bn earmarked for smaller businesses. But the smaller business lending target of £19bn in the first quarter was missed by nearly £3bn.

Lending to leasing companies has fallen at a far faster rate than overall lending to private businesses (excluding financial services) where outstanding loans are down 10 per cent to £535.7bn compared with £581.7bn a year ago.

At the same time as banks reduce lending through independent leasing companies, they are themselves reducing their provision of leasing direct to SMEs. For example, in February Barclays confirmed that it would cease offering leasing to small businesses.

Bank lending to leasing companies is down by 35 per cent on its level three years ago of £602bn.