Called to account

5 mins read

Finding funding to further your factory’s fortunes should be relatively straightforward. But the process does require a proper understanding of the financial fundamentals. Ian Vallely discovers the answers to some of the more common questions

Authorities as diverse as employers' groups, trade unions and the big banks all agree that action is needed to increase the flow of investment into the manufacturing sector. Even the government, with its new-found belief that manufacturing is not a dirty word, has finally woken up to the fact that the sector's problems are not all of its own making.

But all this is scant comfort of your plant is worn out now, your methods are outmoded and you can't afford to improve them, or you can see new markets, but simply can't fund what it would take to exploit them.

Of course, it doesn't all come down to money. There are things you can do to improve your competitiveness without spending huge amounts of cash: re-allocate existing resources, train and motivate your people better, strengthen your customer relationships, improve your cash flow management, the list goes on.

There does come a point, however, when only additional investment will do. But how do you negotiate the financial minefield? Here are answers to some of the more common investment questions:

How much can I ask the lender for and what sort of things can I fund?

David Atkinson, head of SME manufacturing at Lloyds Bank Commercial Banking, says there is no cap on the amount of funding his bank will lend. "We receive requests for a variety of reasons, including applications for funding to purchase premises for expansion, to support the acquisition of other businesses, to support day-to-day working capital needs, as well as to support international trade opportunities."

Asset finance funding from Lombard, meanwhile, ranges from £5,000 to several million pounds. The company will support tangible assets from plant and machinery to commercial vehicles, office equipment to specialist equipment.

For Mike Rigby, head of manufacturing at Barclays, no amount is too small or too big: "The restriction is more around how much the business can realistically afford to borrow. Banks are generally happy to fund any type of requirement as long as it is either supporting a company's working capital requirements or investment ambitions."

Siemens Financial Services (SFS) offers finance for a wide range of assets with from values from £1,000 up to several millions pounds.

Brian Foster, head of industry finance at SFS, says: "In the industrial sector, the range of equipment that can be acquired through asset financing is many and varied. Examples include the full gamut of machine tools used in the fabrication sectors – both heavy and light – together with a variety of 'pick and place' technologies, assets used particularly in the hi-tech manufacturing sectors such as the mobile phone industry."

He adds: "Other assets that can be funded via asset financing include vehicles and movable plant, building technologies, IT and control systems, security systems and printing equipment."

At what point should I approach a lender for funds?

Says Ian Wilkins, leader, UK commercial and corporate lending at GE Capital: "The sooner the better. The first hurdle when making an investment decision or securing finance to purchase new equipment is to understand what forms of finance are available, in what quantities, from whom, and the likely costs involved.

"All too often businesses make investment decisions or place orders for new equipment before they have arranged finance. This is a dangerous strategy that can lead to missed opportunities. The best approach is always to research and plan ahead so that a more informed decision can be made."

Neil Lloyd, head of sales development at Lombard, agrees: "As well as helping to secure your funding, the information you provide will ensure that your bank understands your business needs, and how they can best meet these needs. In addition, your bank or financial provider, will also be able to demonstrate how you can capitalise from schemes and initiatives."

What do I need to show the lender?

The most important thing is for the lender to understand the background to your request. Atkinson explains: "Whether you're considering applying for a loan or looking to re-finance existing borrowing, a comprehensive understanding enables the lender to assess the business' ability to repay and service any debt, a key factor."

Rigby adds: "You need to show them your plan for the business and enable them to understand how your business functions and competes within their market. We are keen to understand how this translates into the financials of the business (both historic and projected) and whether this presents a good source of repayment. We are always keen to hear the strategy and ambitions for the future as well."

How soon will I get a response to my application?

This really depends on your financing requirements. Wilkins explains: "Relatively small finance requirements such as a small Hire Purchase facility to buy a new company vehicle would reasonably be decided within in 24 - 48 hours.Complex financing structures could take much longer - anything up to two or three weeks.

"The important thing is to understand at the outset how long your funder's timescale is for making the decision, but also when they can arrange for the facility to be set up and funds released so you can build those into your own project planning. Most good lenders will provide regular updates on the decision making process."

Atkinson adds: "We aim to respond to applications as quickly as possible and are able to provide a decision on certain requests within 24 hours. However, more complex applications will understandably take longer."

Barclays says it should be able to make a final decision within a week provided it has all the information it needs.

How will the lending decision be made?

For Wilkins, there are three stages: "First, a responsible lender will need to be comfortable that your business is able to meet the additional financial commitments faced as a result of the new financing being requested, following an assessment of current and projected financial performance."

Secondly, the credit track record of the business and its owners is also important: "Understandably, a lender would rather deal with a business with a clean credit history, than a business that has failed to honour its financial commitments in the past. That isn't to say that funding is never available for businesses with a weaker credit history, but the price of the funding and the amount available may be impacted."

Finally, the lender will want to have confidence that the execution of the project or planned investment will not have a negative impact on the business. "For example," says Rignby, "it would not be unreasonable for a lender to want confirmation that there are sufficient confirmed orders to justify a significant investment in a high piece of production equipment.A machine sat idle due a lack of orders would not be good for the business or the lender."

Depending on the type of product and for some businesses a decision may be made locally. At Lloyds, local relationship managers hold lending discretion of up to £1 million. However, in certain circumstances, for example where the amount requested is above the local lending discretion, it may be necessary to consult other departments within the bank. It is not unusual for this to happen and doesn't tend to negatively affect the outcome of the request. Lloyds. For example, accepts and agrees more than 80% of all applications for credit.

What are my options if the answer is 'no'?

The bank should let you know the reasons why and explain how you can improve future requests for borrowing. At Lloyds, your relationship manager will also let you know about other sources of help available, for example, Mentorsme ( or other alternative sources of finance.

You should have the right to lodge an appeal if you're dissatisfied with the outcome, which means your original request will be reviewed, in Lloyds' case, by an independent lending appeals team. Atkinson says appeals must be lodged within 30 days of the original decision and may be submitted via your relationship manager, the bank's websites or the Better Business Finance website ( latter was set up by five leading high street banks in 2011 to provide impartial information and support for businesses looking for finance to grow.

Lombard approves nine out of 10 of the applications it receives, says Lloyd: "Because the security is in the asset being funded, this means that the risk to the funder and the business making the investment is lower and therefore it is often possible to gain funding through asset finance, even if you have not been able to secure other funding."