Member Article

Cost of credit eased for manufacturers

Fewer manufacturing companies have experienced increases in overall cost of credit, according to the ‘Access to Finance’ survey from EEF.

The number of companies that found overall increases in the cost of borrowing fell to its lowest level since the manufacturers’ organisation began the survey in 2007, having fallen from 13.5% to 8.5% like for like.

Although the cost of new borrowing and cost of credit has somewhat improved, manufacturing outfits are increasingly moving away from finance providers in favour of investment from internal finance.

In the second quarter of 2012, the number of firms that reported a raised cost of credit fell from 21.2% to 11.2%; a statistic that EEF aligned to the governmental Funding for Lending scheme, which hopes to ease credit for SMEs and encourage banks to lend.

Ms Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, said: “It is a welcome sign that the stubbornly high number of companies seeing the overall cost of finance increase has fallen to the lowest level since the financial crisis.

“While it is still too early to draw definitive conclusions, the fact this has coincided with the latest round of credit easing via the Funding for Lending Scheme offers hope that some impact is being achieved.

“However, there are still more companies saying the cost of finance is going up rather than down. With the short-term demand outlook looking very challenging, we simply cannot afford to have factors that are at least partly in the UK’s control holding back desperately needed investment.”

Movements in cost balances have been welcomed by the manufacturing sector, however increasing numbers of companies said they do not need finance from external sources, while 51.6% of SMEs said they were in this position.

EEF suggested that although companies have said the cost of finance is decreasing, there is still “considerable strain on wholesale funding costs for banks”.

As businesses increasingly turn away from external finance providers, EEF said many companies seem to be retaining cash in order to buttress their own working capital and investments.

Advice for SMEs suggests that businesses need to re-engage with government finance schemes, such as Funding for Lending.

Lee Hopley further commented: “[The] government must stop hiding behind Whitehall marketing bans and start aggressively challenging banks and other finance providers to show our SMEs what they’re prepared to offer under the new Funding for Lending Scheme.

“We need our credit-worthy firms to bring forward each and every investment that they are contemplating to help support growth.”

This was posted in Bdaily's Members' News section by Miranda Dobson .

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