Peter Austin, General Manager (Flow Business) of Siemens Financial Services, says he has been receiving numerous questions from his customers (resellers) on the current state of the credit market and has some answers to give!
“Resellers are expressing concern that as one of the UKs leading providers of asset finance, Siemens would (like the major international banks) be altering its rates and credit assessment policies.
But actually, the message is that stable, well balanced financiers take a longer term, more holistic approach view when it comes to risk. This is because they make far longer term commitments to their customers and the markets in which they operate. So, just as Siemens advise their customers to develop a diverse “basket” of credit lines, they as a financier also diversify their credit sources. As a result they are more protected from singular economic extremes – such as the one recently caused by an over reliance on Collaterised Debt Obligations – and therefore less likely to have to change rates or policies in an unpredictable way.
So, as long as macro-economic factors remain within acceptable tolerances, this credit squeeze should not adversely affect reselllers who are well-run businesses. This is because these businesses will always be able to borrow to invest when the credit is secured on the asset in question. As such we believe there will be a pronounced swing towards asset-based financing, as companies look for more prudent and sustainable funding sources.
There are two angles to this – Firstly, resellers who are worried about their own banking credit lines should be using asset finance to fund their own technology investment to keep ahead of the competition – but secondly, if they are worried that their customers will start delaying purchasing decisions because of their own cash concerns, then resellers should be using point-of-sale finance to facilitate sales.
There is still such scope for resellers to encourage their customers and prospects to do this. In fact, in Brown’s Britain, there should be calls for a far greater focus on efficiency in business investment. Of the UK’s £90bn/year investment in equipment and facilities (other than property), only 30% is acquired using asset finance.
Siemens believes that there is between £30bn and £40bn of capital “frozen” in business assets (equipment & plant) that are purchased outright (using bank borrowing, for instance). In the current tightening of loan credit, companies will be turning towards more asset finance in order to free-up this inefficiently used capital.”