The Manufacturing Agenda
Expert voices Partner outlook
Where five major banks once dominated, today specialist challenger and independent banks have grown significantly in number, product range and market share. In our view, this has created a borrower’s market, giving viable businesses more options than ever before, from lenders that still have real appetite to engage with, and support, the manufacturing sector.
The value of ABL for manufacturing firms is reflected in the fact that almost one in four invoice finance and ABL clients are manufacturing businesses, and that appetite to support manufacturers among asset- based lenders remains particularly strong. Generally speaking, it’s often well-priced debt, and lenders can deliver very tailored financing packages to meet manufacturers’ specific needs. Improving prospects To maximise the chances of securing funding – ABL or otherwise – manufacturers should prioritise strong financial reporting so they’re in a position to tell that compelling story that my colleague Matt Whitchurch wrote about earlier in this same report. While the manufacturing decisionmakers we spoke to report that internal factors such as business performance concerns, HMRC-related issues or insufficient collateral have impacted their ability to raise, the truth is that none of these factors alone means funding is unattainable. The key is to work with a trusted adviser who can work with all parties to identify and structure appropriate facilities – delivering tangible, flexible and well-priced solutions that will support the business now and in the coming years.
Alex Hilton-Baird
Using balance sheet strength
Debt Advisory Partner at FRP & CEO, Hilton-Baird Group Connect on LinkedIn
The key word is ‘viable’. In the current market, it is imperative businesses demonstrate to lenders and investors that they are financially and operationally robust, backed by a proven leadership team and realistic projections – whether seeking funding for growth or to overcome financial difficulty. If they can, and any financial challenges can be quantified and explained, traditional debt finance will still be readily available to them. For manufacturers, however, the most effective funding often isn’t traditional sources, but through leveraging the value of the assets on their balance sheet: receivables, plant and machinery, inventory or property. Asset based lending (ABL) has long been a practical way to sustain working capital access to meet cash flow challenges and fund investment. According to the latest UK Finance data, ABL is the fastest growing part of the invoice finance and ABL sector. Client numbers have increased by 64% in the four years since December 2020, and the amount of funding advanced has grown by 78% to £5.9bn.
The events triggering board-level debate or urgent action share a common theme: prioritise cash flow and working capital availability, and it becomes easier to respond when challenges arise. The difficulty is that sustaining cash flow can itself be a challenge when access to finance issues are so prevalent.
A shifting lending landscape
The tightening of credit reported by our sample has its roots in the 2008 financial crisis and a polarisation of lending in the years since. Against the backdrop of more rigorous capital adequacy requirements, traditional high street lenders have adopted a more stringent lending model which focuses on affordability and treating customers fairly. But, at the same time, the lending ecosystem has become more diverse.
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