Smart money

During their respective lifetimes, obtaining finance is a bridge that most manufacturing companies will have to cross at some time or another and with MACH 2010 looming on the horizon, potential visitors may well be considering funding options for their next purchase. During the recession in particular, banks have been receiving their fair share of bad press, but just what is their take on supporting manufacturing companies? Dave Tudor quizzes Graeme Allinson, head of UK manufacturing, transport & logistics at Barclays, Peter Russell, head of manufacturing & industrials, RBS Corporate Banking and Adrian Rigby, head of commercial products at HSBC.
DT: In terms of the overall economy, how important do you think the roles of SMEs and manufacturing companies are and how significant will they be for future prosperity?

GA: In any balanced economy both of the above are critical for creating employment and driving overall GDP growth. At Barclays Corporate, which focuses on businesses with turnover of more than £5 million, we bank a significant segment of the UK manufacturing sector, and as such the sector's success is directly linked to the success of the corporate bank.

PR: SMEs are often referred to as the engine of the UK economy due to the number of people they employ and the revenues they generate. The UK manufacturing sector comprises 168,000 companies employing more than 2.5 million people, so it has a significant role to play in the future prosperity of the UK economy. It has been one of the sectors hardest hit by the recession and we want to ensure we are doing everything we can to support the sector as conditions begin to improve. We've been speaking to manufacturing customers who tell us their businesses were first to enter the recession but a number are now showing signs of growth and we are here to nurture that growth.

AR: At HSBC we understand the important role SMEs play in the success of ‘UK plc' and we're committed to helping firms make the most of the recovery and prosper in 2010. Without a doubt manufacturing will continue to play a critical part in contributing to the future growth of the economy.

It is natural that some investment plans were put on hold during the recession but there are still opportunities for strong innovative manufacturers – particularly for those who trade internationally. The UK maintains a global reputation and impressive track record for manufacturing and UK firms can cash in on the weakness of the pound by developing their exporting capabilities or offering complete prized goods overseas this year.

DT: Do you have a dedicated department set up within the bank to deal specifically with the needs of UK manufacturing companies?

GA: Nationally we have approximately 100 relationship directors (RDs) who only look after manufacturing companies so they build up a detailed knowledge of the sector, its issues, opportunities and challenges. These RDs sit within a dedicated Manufacturing, Transport and Logistics Group.

PR: Yes, we have a team of specialist bankers dedicated to the manufacturing and industrials sector.

AR: Depending on the size of the business, we have regional commercial and corporate teams on the ground across the UK that are experienced in working with manufacturing companies and can help them find the right financial solutions for their needs. This includes providing equipment finance for new manufacturing assets, replacing old assets or helping businesses to expand operations.

DT: How much money has been allocated by the bank specifically to help SMEs and manufacturing companies?

GA: We do not allocate a specific amount of lending to particular sectors, as we need to judge each business on its merits and needs, and also work with the level of demand for debt in each sector. However, we remain very committed to the manufacturing sector, and see significant potential in the sector in the coming years.
In terms of supporting SMEs, we have now sanctioned more than £165 million in Enterprise Finance Guarantee (EFG) loans and recently released £150 million in new funding for UK SMEs through the European Investment Bank (EIB) Loan Support Scheme, which includes a 2.5% upfront cashback payment.

PR: In January, RBS and NatWest pledged to make £1 billion of new loans available on competitive, flexible terms to UK manufacturing businesses of all sizes – not just SMEs. The bank has ring-fenced a fund specifically for the manufacturing sector, with loans being offered on competitive fixed rates and with the option to defer repayments for up to three years.

AR: Throughout the recession, and as we now enter recovery, we have remained open for business and our lending strategy has not changed. At the end of 2008 we created a £1billion fund which was to invest into UK business and on top of existing lending and we lent £0.8 billion of this to businesses in 2009. We remain very much open for business and will continue to support and advise UK SMEs to help them prosper after what has undoubtedly been a very testing time for UK businesses.

DT: Word on the street is that it's very difficult to get financial help from the banks. Despite low interest rates, banks are increasing charges, reducing overdraft limits and asking for personal guarantees. What is your response to these claims?

GA: It is clear that margins have risen from the historic lows seen in 2007, but overall borrowing costs are still down. As a bank we are always looking to lend money – it is how we make ours – and we have sanctioned more than £15 billion in new business lending in 2009. The overall economy is going through the worst recession for many years so we are inevitably scrutinising all lending deals and pricing for risk, but fundamentally lending is what we do and there is absolutely no reason for us to turn down a viable business with a creditworthy lending proposition.

PR: We recognise that access to finance at fair prices sits at the top of many businesses' wish lists. We implemented a charter for SME customers last year which makes a number of commitments designed to help businesses meet the challenges they face. These include our promise not to increase margins on renewal of overdrafts unless the risk profile of the business has changed materially; the provision of overdrafts on a committed basis; and the capping of arrangement fees at 1.5% per annum.

DT: There is a belief that during the recession rather than help companies through difficult times, banks have actually been a hindrance? What would you say to these claims? Do you think banks have had their fair share of bad press recently?

GA: It is not in a bank's interest to be a hindrance. We are committed to lending responsibly, and while this sometimes means turning down lending propositions where a business' ability to service the debt is in serious question, our focus is to foster growth. Our Business Support unit, which manages business relationships where the organisation may be struggling with debt, returns around 80% of clients that enter a turnaround programme to good health. This is a figure which is of immense pride to us. DT: Are you currently offering any incentives for small businesses and start-ups? Please elaborate.

GA: We are committed to businesses of all sizes and in all sectors. For examples of recent support for UK SMEs, please see the Statement of Support on our website.

AR: In 2009 HSBC supported 121,000 start-up businesses, which equates to 2,300 per week. We understand the level of support new businesses need in order to succeed; start-up businesses receive 18 months free of business banking, regular business reviews and support from their local business team.

DT: For any company looking for financial help, what advice would you give?

GA: A request for new lending must be supported by a robust business plan with sound assumptions, modelled on both best and worst case scenarios. Any bank will want to quiz the individuals behind the plan to gain a view on their experience, knowledge etc. Detailed preparation for this will certainly help.

PR: Aim to ensure you have all your vital business information up to date and readily to hand when you approach a bank for funding. Be specific about what you need for your business and provide tangible information to back up your funding request. Our ‘Practical Guide to Cashflow and Finances' lists the top six pieces of financial information that we will ask you for, albeit the precise level of information required will naturally depend on the scale and complexity of your business and the level of funding required. For example, we would not expect to see detailed financial projections for an individual contractor, but we would expect you to know when bills need to be paid and when cash will be coming into the business. We have published lots of information to help businesses on our website. AR: We look at each business on a case-by-case basis so when making lending decisions we are looking to support companies with good cash flow management, a strong balance sheet, a sound business plan, a well-balanced management team, a good business record, and who are looking to develop and grow.

DT: I have heard from a number of sources that in general, manufacturing companies no longer feature on banks' radar and it's a sector that they would rather avoid than encourage. What would you say to this and have you used the economic downturn to increase your security?

GA: This is completely inaccurate, not only from Barclays' perspective but witnessed in the competition that is now emerging amongst banks around lending to viable manufacturing businesses. Manufacturing is one of the sectors that has evolved most swiftly and effectively during the current recession, having become battle hardened in previous downturns, and we believe it is well positioned to benefit from the opportunities presented through continued globalisation.

PR: I hope that the launch of our own dedicated £1bn Manufacturing Fund earlier this year leaves businesses in no doubt whatsoever about our commitment to the sector. We wanted to provide a very clear signal to UK manufacturing businesses of all sizes that RBS is willing and able to lend money in support of their growth and to do so at very competitive rates. We have funds available to lend and would encourage manufacturing companies to come and speak to us about how we can help.

DT: Positives. Can you give any recent examples of how you have helped companies in the manufacturing sector?

GA: As well as running several industry specific events to help our clients navigate the rough economic waters, we also ran ‘Turning the Corner' programme that supported businesses through 2009 by sharing advice and expertise and connecting them with their peers. More than 3,700 people attended one of our events and through the programme we delivered 1,200 business leads for our customers. The supporting website featuring guides and videos has received over 80,000 visits. (www.barclaysturningthecorner.com)

PR: Knowsley-based Counterline benefited from our Manufacturing Fund when it secured finance to help cover the costs of new orders worth £2 million. The specialist manufacturer of food service counters and displays secured a £550K loan from the fund as part of a £2.3 million finance package, which also included funding via the EFG scheme and from RBS Invoice Finance.

AR: Certainly. Le Mark is a manufacturer of self-adhesive and self-fusing silicon tapes, based near Huntingdon, Cambridgeshire. We are working with Le Mark to help it trade internationally and currently they use our Sterling, Euro and Dollar accounts and also use our International Invoice Finance product. Stuart Gibbons, managing director of Le Mark cites that HSBC has significantly helped the business by funding its export debt and hedging US Dollar volatility, which has helped smooth pricing transition when exporting overseas.

DT: The bottom line. Will you support UK manufacturing for the foreseeable future?

GA: Absolutely, the sector is vitally important in Barclays own growth strategy, as well as being vital to the UK's economic recovery.

PR: Absolutely, yes. We're beginning to see some encouraging signs for the manufacturing sector and as companies turn their thoughts to investment we want them to come and speak to us about the ways in which we can support their plans.

AR: Yes, we are committed to lending to all sectors, including manufacturing. Now is the time for businesses to seize the opportunities offered by the recovery and get ahead: they need to invest for growth and trade their way to prosperity.

DT: Anything else you'd like to add?

AR: Our Business of Recovery report reinforced the fact that times have been tough for the UK's manufacturing firms – the 24% reduction in turnovers in manufacturing is symptomatic of reduced consumer demand in the wake of the credit crisis.

However, as we begin to look to the recovery, the future for the manufacturing sector is positive. Average expected growth for manufacturers – between now and 2012 – stands at 239% and is slightly higher than average growth figures – which is key to UK prosperity.

Barclays
www.barclays.com Royal Bank of Scotland
www.rbs.co.uk HSBC
www.hsbc.co.uk