Obligations and moderation

When it comes to finance, there is one topic on everyone's lips ­ the credit crunch, writes Peter Austin

From the moment the Northern Rock debacle sparked panic in the consumer marketplace we have been receiving numerous enquiries from our reseller customers worried about the impact on commercial credit.
They thought that, like some of the major international banks, we might alter our rates and credit assessment policies.
My response is simply that stable, well-balanced financiers take a longer-term, more holistic approach when it comes to risk. Our business is based on strong customer relationships and we have an obligation to understand customers, their markets and the assets we finance.
Also, just as we advise our customers to develop a diverse ‘basket’ of credit lines, we diversify our own credit sources. Thanks to these two approaches, we are more protected from singular economic extremes, such as the current credit crunch, and are less likely to make sudden changes to rates or lending policies.
Resellers are also worried about the sustainability of their credit lines, and those of their customers, with the traditional high-street banks.
But at the risk of sounding churlish, I believe there is a need for many firms to reassess whether or not
their credit lines are fit for purpose.
For instance, asset finance frequently delivers many advantages over bank borrowing when it comes to financing technology investments, but of the UK’s yearly £90bn investment in equipment and
facilities other than property, only 30 per cent is acquired using asset finance. Therefore, it is possible to estimate that between £30bn and £40bn of capital is frozen in business assets such as equipment, that are purchased outright using bank borrowing, for instance.
So, provided leading macro-economic factors remain within acceptable tolerances, the credit squeeze will not adversely affect well-run UK businesses because they will always be able to borrow when the credit is secured on the asset in question.
As loan credit tightens, we are likely to see a greater swing towards asset fi nance to free up inefficiently used capital. And resellers that are worried their customers might delay purchasing decisions because of cash concerns are likely to become more active in offering point-of-sale asset finance to facilitate sales. This could prove to be an unexpectedly positive effect of the credit crunch.
Peter Austin is general manager of flow business at Siemens Financial Services.