Following the number of enquiries we’ve had from growing companies operating in the manufacturing sector, it seems traditional banks are unwilling, or more likely unable, to support British manufacturers to the levels they require.
Which is not only holding back resurgence in UK manufacturing, but also damaging to the individual businesses and to the UK economy in general? To look at this with any real insight though, I’d like to consider where our strengths lie as a manufacturing country within the global market.
The rise of China as a manufacturing powerhouse over the last two decades has seen a seismic shift in the production of goods across the globe. The availability of cheap labour means ‘first world’ countries are no longer able to compete in the mass production of items such as electronics, clothing and footwear.
As a result, many factories in the UK have closed, and the economy has shifted from manufacturing led, to services led (currently at circa 80% of GDP*). However, the UK has also now developed a reputation for the small batch production of high quality goods, or those that require precision levels of technical engineering. Which leads us back to my initial point as these businesses, which ought to be revered, are increasingly find it impossible to fund their growth?
Why are star UK Manufacturers finding it hard to attract the right funding?
In my view, the banks have been somewhat hamstrung following the NatWest v Spectrum ruling (2004) which dictated that book debts would come under a floating (as opposed to fixed) charge, meaning any preferential creditors would rank ahead of the charge holder i.e. the bank. This led to the banks pushing their clients towards Asset Based Lending (ABL) e.g. Invoice Factoring and Invoice Discounting, and away from overdraft facilities – to ensure they maintained their priority in relation to Book Debts.
However, the key issue for the new breed of UK manufacturers is that often, they don’t have a book debt that fits neatly into the banks or ABL’s funding model. For example, large precision engineering projects are often billed in stage payments making it difficult to fund using invoice finance, because it is perceived as a higher risk.
Global Asset Finance Limited and its partner funders have taken on a number of these UK manufacturers in recent months, who operate in sectors such as defence, lighting, machine design/assembly and medical scanners. Well established businesses, with solid balance sheets but with funding capped by their main bank.
However, they still have a requirement to purchase component parts at the beginning of production process, which can often add up to significant sums. This problem is compounded as banks will usually hold debentures which contain negative pledges, meaning the business can’t seek secured funding from a 3rd Party without that Banks explicit permission.
So how do we help these manufacturing clients?
Global Asset Finance Limited and its partner funders as been able to assist by offering fully unsecured (no debenture and no personal guarantees) Trade and Stock Finance Facilities. We purchase product on the client’s behalf with repayment being made to us within a maximum of 120 days. By funding the early stage of the manufacturing process, the facility allows these businesses to take on new projects and grow their order books, which previously would have been restricted by cash flow.
With Brexit ahead, I have no doubt that UK manufacturing will continue to operate in a challenging environment, however I feel optimistic. I know Global Asset Finance Limited and its partner funders can facilitate working capital loans that are not simply “out of the box” solutions, and with that, we have the flexibility to help drive the sector forward to a bright future.
As a footnote whilst this blog focuses on manufacturing, it is also worth mentioning that Global Asset Finance Limited and its partner funders can offer both Trade Finance and Supply Chain Finance, which means our funding can be used to pay suppliers for both goods and services. Proof of this is the diverse range of our current clients, which includes but is not limited to; Aerospace, Agriculture, Construction, Education, Energy, Food & Drink, IT, Media and Retail.
Please visit our website www.globalassetfinance.com and look at the financial services, we can offer your business and we will show you a positive way forward.
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