Demand for asset finance from UK small and medium-sized business has been steadily growing since the 2007 financial crisis. According to industry body UK Finance, asset-based lending balances for its members stood at £21.8bn at the end of June – up almost half on the same time in 2007. This type of finance can work in one of two ways, either allowing businesses to take out a loan secured against the value of assets on their balance sheets, or providing finance for the purchase of an asset. In the latter case the asset can be repossessed if payments are not met.
With more of the major lenders exiting or reducing their exposure to asset finance during the past decade, UK challenger banks have stepped in to take advantage of growing demand. Looking at the loan books of those UK-listed participants demonstrates the growth benefits of building an asset finance business. Aldermore (ALD) and Close Brothers (CBG) have the greatest exposure to asset finance. For the former, it accounted for more than a fifth of net loans to customers during the first half of this year. With balances standing at £1.7bn at the end of June, that represented an increase of 43 per cent in the two years the group had been listed. It even acquired a 48 per cent stake in SME brokerage AFS earlier this year, indicating the importance management places on developing the asset finance business.