Now is the time to go to the bank if your firm needs cash

The banks want to lend money again.

Years of trouble getting access to finance appear to be coming to an end as the big lenders put the recession and various rigging scandals behind them.

This month HSBC announced a new £150 million fund to help small and medium-sized businesses in Kent to grow – part of £8 billion it will invest across the country.

Manufacturing firms in Kent performed well in the exports market
Manufacturing firms in Kent performed well in the exports market

Meanwhile, the Business Growth Fund (BGF), an independent company with £2.5 billion to invest nationally, has been offering money to small firms for four years.

Set up by Barclays, HSBC, Lloyds, RBS and Standard Chartered, it is looking for established businesses turning over between £5m and £100m that struggled to get cash when the crisis took hold.

With a much more stable government than anticipated after the general election, it looks like the perfect time to grow by giving up some equity or to taking out a loan.

So it was understandable to see surprise on the face of Chris Hodges, investment director at BGF, after the lukewarm reception for his pitch to a group of Kent manufacturers this month.

“It is happy days for ambitious companies looking for money,” he enthused during the breakfast seminar organised by asb law at its Maidstone offices. "We are seeing a lot of capital available in the market. The judgement call is to find the right debt to work for your business.”

The truth is manufacturers are a cautious bunch, forced to worry about the financial climate in neighbouring countries, which many rely on to export their products.

“The challenge in Europe is the eurozone,” said Richard Doran, director and founder of Primalec, an air-conditioning services firm based in Nettlestead, near Paddock Wood.

“Anyone who buys raw materials from the US and sells to Europe will see a large gap in their margin because of the strength of the dollar and weakness of the euro. We can’t increase the price with such low inflation, but we are suffering a 30% difference in what we can get for our products, purely down to the exchange rate. Our competitors in Europe have an advantage at the moment compared with a few months ago.”

It's said banks want to lend money again. Picture: www.istockphoto.com
It's said banks want to lend money again. Picture: www.istockphoto.com

There was a marked slowdown in the rate of expansion of the UK manufacturing sector in April, with growth falling to a seven-month low, according to Markit/CIPS UK Manufacturing PMI report.

Barclays corporate banking director Ross Taylor said financial pressures had made manufacturers reluctant to expand, instead focusing on balancing their books.

“We are still seeing a lag on investment, manufacturing firms appear to be taking debt out of the business. We have not seen a lot of uptake for funding mergers and acquisitions. Also firms are not investing in new equipment.”

Unless the attitude changes, he said Kent companies could find themselves falling behind international rivals.

“China, the US and India are all ahead when it comes to investing in advanced manufacturing equipment as a proportion of GDP. Many companies I speak to are waiting for sales to increase before they invest.”

Packaging manufacturer Plastique attracted a £5 million investment from the Business Growth Fund after showing its potential to expand in the £6.5 billion European rigid plastic container market.

Established in 1979, the company has annual revenues of £25 million and employs 170 people at its head office in Tunbridge Wells, Nottingham and Poznan, Poland.

It forecasts growth of 6% each year in the medium term, driven by demand in emerging economies in eastern Europe, which attracted the investment of BGF.

Plastique managing director John Lowe, left, and sales director Perry Rigler
Plastique managing director John Lowe, left, and sales director Perry Rigler

Managing director John Lowe said: “Our commitment to quality and design has given us a track record of success going back over 35 years. With BGF’s involvement, we feel we can go further and faster. With an investment of growth capital into the company, we can significantly improve our already profitable business over the coming years without losing control of what we have worked hard to build as a team.”

Plastique was attracted to BGF by its hands-off approach, taking a maximum of 40% equity and no control over decision-making.

BGF investment director Chris Hodges said: “We consider ourselves a guest at the party. Many family-owned businesses are shy about inviting external parties in, but it goes back to the age-old conundrum of if you would be happy with a smaller share of a bigger pie.

“We are not venture capitalists doing very early-stage companies. We want established SMEs with proven management teams looking to grow.”

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