The Asset Finance Observatory – a research network of Leasing Foundation Governors and Fellows – has launched the results of its first project at
The first of the Asset Finance Observatory projects, SMEs and Asset Finance is a qualitative pilot study of SME perceptions of asset finance products. The aim of the project is to start to identify and define evolving customer needs, unpack and redefine customer segments by examining factors including ownership structures, lifecycle stage and rate of growth, and and to analyse product promotions and sales to understand key moments of truth for SME customers.
Professor Peter Thomas, the Foundation’s COO, says: “Although this project is exploratory, we’ve identified some key issues that we will pursue in more depth in later projects.
“Perhaps the most important, although not unexpected, is that the industry needs to communicate more effectively about its value and what roles its products play for the many types of SMEs at their many and varied stages of growth, business cycles and aspirations. Many studies have confirmed that asset-based finance is beneficial for SMEs but the take-up of these products is still low.
“This project helps us to start to understand why: it’s a result of the fact that the names used for products are inconsistent, contradictory and hard to understand. Products are largely seen, negatively, as being ‘non-bank’ lending.”
The research project, based on a small number of in-depth qualitative interviews with UK-based SMEs, also reveals that finance providers are inhibited by a lack of information, an issue addressed in recent government proposals to help match SMEs rejected for finance with alternative lenders.
Also emerging from the project is that the term ‘SME’ is often used as though it were a single homogenous category. Professor Thomas says: “Number of employees, turnover, business volume and profitability are arbitrary dimensions on which to segment heterogeneous businesses. Even segmentation based on phase or pace of growth is a blunt instrument – mid-market businesses have more in common with large businesses than they do with small businesses, and micro-businesses – and businesses at the smaller end of SME spectrum – are very different from larger SMEs.
“We want to develop a finance-based segmentation that includes business goals and cycles, the nature of financial experiences, speed of growth and the financial ecosystem in SMEs exist. We think this will be useful in understanding whether specific product offers are appropriate, and if so when, and to craft communications messages around products that will appeal to particular SMEs.”
Rachael Woods, Marketing and Communications Director for CIT International Finance comments: “It is well publicized that there is a lack of awareness of alternative financing within the SME market. Initial findings from the pilot would support this and in my view, the industry must do more to promote the value of leasing as alternative funding vs. traditional bank sources. The Asset Finance Observatory pilot research project helps the Leasing Foundation and its partners not only understand and analyse these perceptions but gives the industry the opportunity to change perceptions going forward.”
Jo Davis, Partner for Asset and Consumer Finance at DWF, notes: “Asset finance plays a vital role in funding SME investment. But there is still a great deal of work to be done to raise awareness of asset finance as a viable product for raising capital among SMEs. The Leasing Foundation are working on a variety of projects to increase the visibility of asset finance and leasing as strong alternatives to traditional bank funding.”