John Layzell, business management, Lloyds Bank Commercial Finance, tells ITM about how now is an ideal time for manufacturers and exporters to invest in growth.
For ambitious manufacturers and exporters, there has probably never been a better time to invest in growth due to the number of discounted funding schemes, and the range of finance options available on the market. With the Government aiming to increase exports by £1 trillion by 2020, 71% of firms told a recent British Chambers of Commerce survey that they expect their turnovers to increase over the next few months. Now is the time for firms to fuel their ambitions for expansion through international trade, but to do this, it is important to take steps to create a viable business plan.
There are a number of support services available for SMEs including organisations such as UK Trade and Investment and The Manufacturers’ Organisation (EEF), and of course your relationship manager at the bank, who will be happy to talk through any plans and ideas. It is also wise to research the most recent export trends to see where your products are best placed. Our latest bi-yearly Lloyds Bank Business in Britain report found that business’ strongest hopes for export lie in the Asia-Pacific region.
Business confidence across the UK rose in all sectors and is currently at a 20 year high, but to fuel this confidence, British firms need access to the right type of funding. Having prioritised paying down debt during the past five years, Britain’s SMEs now own an average of £240,391 in untapped assets such as stock, equipment and property, almost two thirds of which they now own outright.
Alternative forms of finance
Asset-based lending can be a useful tool to free up cashflow, or even fund a management buy-out or acquisition, and can be used to borrow against stock, plant, machinery and property with the facility working alongside an invoice finance service and potentially other lending products such as loans as well.
In its simplest form, asset-based lending is any kind of finance secured against an asset, with research from Lloyds Bank suggesting that British firms currently own £770 billion in untapped assets that could be used to fund growth. At Lloyds Bank, we are committed to supporting manufacturers and SMEs, which we have demonstrated through a recent review of our asset-based lending policy. Customers told us that manufacturing sectors dealing with inventories of dairy, grain and fuel were experiencing high customer demand. To support this, we have increased the amount firms working in these sectors can borrow against assets such as machinery, property and other assets.
Recent data from the Asset Based Finance Association found that in the first three months of 2014, strong growth was reported across the main asset sectors. This included double-figure growth in finance provided for plant and machinery, business equipment, commercial vehicles, and IT equipment.
Meanwhile, our research also found that SMEs are owed an average of £59,538 by their customers in unpaid invoices. Across the country, this amounts to an estimated £291 billion that could similarly help small-to-medium sized businesses access working capital that they can invest in growth as the economy continues to recover.
More firms are turning to invoice finance, rather than the tried-and-tested option of an overdraft, to gain the working capital they need as it can grow alongside a firm’s turnover. There are two forms of invoice finance, factoring and invoice discounting. Factoring can release up to 90% of the value of a business’ invoices, typically within 24 hours, giving companies the financial flexibility to expand their operations the moment the time is right deal, ideal for growing businesses, or start-ups with projected sales of £50,000 or over on credit terms. Factoring can also help manage your sales ledger and credit control processes.
Although similar to factoring, invoice discounting is provided on a fully confidential basis. With Lloyds Bank’s invoice discounting facility, SMEs can stay in charge of invoice and credit control processes, so no customers are aware of the discounter’s involvement, while releasing up to 90% of the value of an invoice.
Invoice discounting is designed for companies with a turnover of at least £250,000 and which sell their products or services to other businesses on credit and have strong financial controls in place.
Trade and supply chain finance
In addition to invoice finance, there are a number of trade and supply chain finance options available to consider such as supplier finance, where suppliers can obtain early payment of their invoices, giving them greater access to invaluable cash flow. Similarly, pre-shipment finance can provide a manufacturer or exporter with the working capital needed to produce and ship goods once an order has been confirmed from a quality buyer and is backed by documentary credit. This gives firms the reassurance of being able to take on new contracts and grow a business.
Lloyds Bank may be able to advance payment when goods have been shipped to a customer, so manufacturers and exporters do not have to wait for a customer to pay, giving capital to fund further operations. We have helped many businesses to gain the funding they need through a wide range of tailored solutions. One such company, Filtration Control Limited (FCL), secured a £5 million invoice discounting facility to generate cashflow and satisfy increased customer demand.
The Northampton-based manufacturer specialises in parts and accessories for the automotive industry and is a leading distributor of engine filtration technology for the commercial vehicle, rail and automotive sectors worldwide. The business’ customer base includes many of the world’s leading companies, particularly across Europe, Asia and the United States, including National Express, Arriva, Stagecoach Group and Bombardier Inc.
Through an invoice discounting facility, and an additional £1 million term loan provided by Lloyds Bank Commercial Banking to support a management buyout, the firm has been able to drive growth and take on new projects. Manufacturing plays an important role in rebalancing the UK economy and is integral to the country’s growth objectives. For this reason last September we committed an additional £1 billion of lending for manufacturers to drive growth in the sector and within nine months the bank exceeded this commitment.
In addition to lending, there are a number of schemes in place to support the manufacturing and export sector. The UK Export Finance (UKEF) Bond Support initiative was introduced in early 2011, providing partial guarantees to participating banks under a master bond support agreement for UK exports.
Where a bank issues a contract bond, or procures its issue by an overseas bank in respect of a UK export contract, UKEF will typically guarantee half of the value of the bond and up to 80% for advanced payment and progress payment bonds.
Other schemes by UKEF include the Working Capital initiative, also introduced in 2011, to assist UK exporters to gain access to working capital both pre and post-shipment, in relation to specific export contracts. The scheme exists to help UK exporters grow and is intended for small-to-medium sized businesses. Additional help confirmed in this year’s Budget also indicated that export funding will double to £3 billion, Carbon Tax will be frozen and the annual investment allowance will increase to £500,000.
SMEs should certainly investigate the help available to them through the 2014 Budget, or the Government-backed initiatives supported by Lloyds Bank Commercial Banking, including the Regional Growth Fund (RGF). The £3.2 billion RGF fund helps companies that can demonstrate job creation in the UK to fund projects and programmes that are using private sector investment to create economic growth and sustainable employment.
At Lloyds Bank Commercial Banking, we are also fully supportive of the Funding for Lending Scheme (FLS) under which the bank provides a 1% discount on the life of a business loan. This means firms are able to reinvest the money saved or start new projects. Businesses should seize opportunities to move into new markets both at home and overseas. By investing in growth, they will be able to secure new contracts, increase turnover and create new jobs. Whatever a firm’s situation, it is important to explore all the exporting opportunities available and be confident in the fact that there are support options out there to help ambitious businesses achieve their goals.