Ageing equipment stifling economic recovery

Ageing equipment stifling economic recovery

UK businesses are turning down contracts worth almost £2.3bn a year, due to a reluctance to invest in new capital equipment.

05 February 2012

Research by Lombard, the dedicated asset finance provider of The Royal Bank of Scotland Group, has found that 40% of businesses have said no to new orders as they do not want to invest in the current economic climate.

The low levels of investment mean that the UK now lags behind countries such as Austria, Switzerland, Turkey and Mexico in the use of machine tools, a key indicator of manufacturing investment. Using out-dated machinery is often a false economy through increased maintenance costs and lower efficiency.

Lombard's research also found almost half of those firms that did invest, used cash from their balance sheet, one of the most inefficient ways it could be done with only 14% using asset finance. Asset finance removes the risk for a business as it involves their finance provider taking the risk on the value of any new machinery falling. The asset financier also takes responsibility for the disposal and management costs associated with ownership of new equipment. Yet an alarming 72% of businesses admitted not knowing how asset finance works.

Alexander Baldock, MD, of Lombard, the UK market leader, said: "The economy cannot afford for businesses to turn down orders. Firms are letting their machinery sit idle rather than committing to investment as they don't want to use valuable cash. Yet, there is a ready-made and highly flexible solution in asset finance where the asset financier takes the risk on behalf of the company. This allows companies to get the very latest equipment they need without over-stretching."

Lombard is committing £1bn a quarter to The UK Capex Fund to get the UK investing for recovery. This is available on a fee free basis to encourage businesses to invest.

Case study

LipSync Post is a post-production house based in Soho. They have worked on internationally acclaimed movies such as My Week with Marilyn, We Need to Talk about Kevin, Jane Eyre, Great Expectations, The Awakening, Fantastic Mr Fox amongst others. Lombard helped the firm through funding via a Sale & Leaseback solution freeing up funds as well as finance for two specialised cinema projectors.

Norman Merry, Financial Director, LipSync Post: "The post production industry has gone through considerable turmoil recently with many companies going into administration because of the requirement to invest in high tech equipment. Asset finance has been a tremendous boost to our business. The financial support it has provided has enabled us to grow the business and invest in our future development which has already contributed to the increase in our turnover."

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