SMEs are utilising asset finance to take the next step and are set to be the driving force behind our national economic recovery, writes Paragon's Managing Director of SME Lending, John Phillipou, in the latest issue of the NACFB's Commercial Broker:

If you ever need reassurance of the underlying strength and potential of the UK economy, all you need do is take a look at our SMEs.

Resilient, committed to innovation, and passionate about delivering growth – SMEs are the backbone of our economy and are set to be the driving force behind our national economic recovery.

To fulfil this role it is vital that they continue to be able to acquire the assets necessary to support their operations, but the challenges of recent years have put asset supply chains under continued pressure.

The pandemic saw the number of new assets reaching the UK market fall and the subsequent global economic slowdown has caused many SMEs to make the pragmatic decision to replace existing assets once market conditions improved. However, just when this improvement started to become a reality, supply chains were further impacted by the devasting war in Ukraine, the energy crisis and subsequent rises in inflation.

SMEs who had strategically waited to replace assets are now faced with the choice of paying higher prices due to inflation and low supply or holding on to their existing equipment for a longer incurring higher servicing and maintenance costs. It is understandable that many chose to retain equipment but by doing so fewer items of used equipment came onto the market – pushing up prices and putting more pressure on supply chains.

We have also seen the general availability of assets to smaller SMEs being reduced by the ability of larger corporate businesses to leverage their buying power and ringfence future deliveries via large purchase orders from suppliers. Some SMEs have had to hold on to existing assets even when they were in a financial position to replace them.

Despite the impact of this limited availability of equipment and higher prices, it has not stopped the underlying need of SMEs to acquire and manage their equipment. As SME lending specialists, Paragon is privileged to work with fantastic brokers on a daily basis and there is clear demand from businesses to replace existing assets and expand operations with new technology.

The welcome news for SMEs, brokers, and lenders is that the challenges of recent years are starting to dissipate. Equipment availability is improving, delivery times are speeding up, and the cost of borrowing is hopefully set to fall as the year progresses.

The appetite of SMEs to invest will also receive a boost thanks to newly announced government support. Recognising the importance of SMEs to economic growth the Chancellor, Jeremy Hunt, unveiled in his March budget Full Capital Expensing, which allows firms to write-off 100% of qualifying capital expenditure in the UK against taxable profits for the next three years. Whilst the devil is always in the detail on such schemes, the underlying intention to replace the super deduction and stimulate investment is key messaging here.

After the challenges of recent years conditions are right for SMEs to invest – and Paragon is ready to work with our broker partners and make sure they have access to the financing necessary to make this happen.
 

Visit Paragon's Asset Finance website to learn more about how our team can support your business.