Manufacturers remain reluctant to seek external finance

A new report suggests that manufacturers are reluctant to borrow from banks, with the attitude of many coloured by the financial crash and credit crunch.

The study, by the Engineering Employers’ Federation (EEF), found that a large majority (85%) of manufacturing businesses said they were confident that they could secure finance if they wished to. Despite this, nearly two thirds (65%) said they would not choose external financing.

The survey, which was taken before the EU referendum vote, found that there were solid intentions towards new investment but that more than half (53%) of businesses said any such intentions would be cancelled or put on hold if they could not fund the ventures themselves.

More than half (55%) of manufacturers surveyed said they were holding more cash on their balance sheets than before the financial crisis.

The EEF report suggests that manufacturers’ reluctance to borrow could put growth and investment potential within the sector at risk. According to the EEF this reluctance is a hangover from the credit crunch, when trust and confidence in the banks stalled and never quite recovered.

This failure in trust and confidence could be a factor in the emergence of alternative finance options for businesses that are struggling to meet their costs. According to the UK Alternative Finance Industry Report by Nesta and the University of Cambridge, the alternative funding market rose to £3.2 billion in 2015. This represented 12% of the small business lending market in the UK.

The EEF report comes as the Competition and Markets Authority (CMA) has published its own final report into the retail banking sector for personal customers and small businesses.

Banks will be required to implement Open Banking by 2018. This will enable small businesses to share their data securely with other banks, enabling them to manage their accounts with multiple providers through a single app and to compare products on the basis of their own requirements.

Banks will also be required to set up a Maximum Monthly Charge (MMC) to limit the costs of an unarranged overdraft. This will not be a cross-industry cap however but will instead be set by the individual banks.

By Phil Smith

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