Engineering news
Alternative forms of finance have grown in importance since the recession as engineering firms struggle to access the bank loans and overdraft facilities they need, despite improving economic conditions, a leading business finance provider has claimed.
The provider, which did not wish to be named, backed research released in August by manufacturers' organisation the EEF, which found lack of access to finance was still a “major obstacle” for engineering firms. Lee Hopley, EEF chief economist, said then that while appetite for external finance among SMEs was undimmed, success rates in securing new loans or overdrafts had been largely unmoved over the past two years. Discouraged demand, in which companies believed they were unable to secure finance and thus did not apply, was also a factor.
Manufacturers had increasingly looked to alternative means of finance since 2008 in order to combat lending inertia among the High Street banks, a senior executive at the finance provider said. “Anyone who was involved in financial services during the recession did something to disturb customer relationships somewhere. Companies had to look for alternatives. We'll provide the credit line that leaves the bank free to provide the things only a bank can do.”
The source added that engineering firms had been “frustrated” by the time it was taking banks to make a decision, and the unpredictability of the decision-making process. “I do think that during the downturn banks became unreliable partners for the long-term for a lot of different constituents within the economy,” he said.
John Bevan, head of Secure Trust Bank Commercial Finance, which provides asset-based financing to businesses, said the bank was increasingly looking to work with manufacturing companies and that a dearth in lending on the High Street presented an opportunity. “Vince Cable is looking to support the challenger banks and increase liquidity into SMEs. The sector is a favourite for government. Anything we can do to help support that sector has got to be a positive.” Secure Trust Bank offers loans based on physical assets on the balance sheet such as plant, machinery and property, and releases money through invoice discounting to improve cashflow.
Bevan said that the market for asset-based lending was worth £19 billion a year in the UK across all sectors. More than 40,000 businesses in Britain were using invoice discounting schemes, he added. In terms of engineering firms, he added: “We look to have a good understanding of the business. It takes a partnership between the manufacturer and the bank.”
The finance provider source said that trust had to be rebuilt between business and the banking sector. “The most trusted brands are businesses like Google and Amazon. The least trusted brands are the banks, and that opens up opportunities for players to come in who can be trusted, and for the banks to rebuild their reputations.”