Any manufacturing business in the UK which has managed to survive the last few years will already know that getting finance to move your business forward can be a difficult task. In fact it is one of the most often heard complaints for the owners of small and medium sized businesses – that they cannot get the loans or finance they need to improve their business and their turnover.
Despite recent initiatives aimed at improving lending to SMEs such as the Funding for Lending Scheme (FLS), the amount actually lent according to the Bank of England figures, has been very modest. During the last quarter of 2012, the amount actually lent was less than 6% of the total amount made available under the government scheme. It is also noted that lending to households and businesses is not separated in the figures, so the amount actually going to SMEs is probably smaller. The amount of finance for manufacturers is likely even smaller than that.
For many manufacturers, asset finance is their best remedy to the difficult lending situation. In fact according to figures from the Finance and Leasing Association (FLA) almost one third of UK businesses are now using asset finance as a means of obtaining loans for tangible assets.
Asset finance is an alternative to a loan which is designed to cover the cost of equipment for your business. It can take a few different forms, but the most common are either a lease agreement or hire purchase and covers anything from office items to fleet cars and of course, plant machinery. It is this final category which will help your manufacturing business grow. Some of the benefits of asset finance for manufacturing include:
- The improvement of general cashflow. Capital can be spent on other things or simply to boost the balance sheet.
- New machinery will allow your business to grow, to take on new customers and contracts, to employ new staff and even move premises.
- Asset finance allows you to update your plant machinery at the end of the lease term.
- Depending on the type of asset finance used, there can be various tax advantages.
- You can avoid having to deal with a traditional lender, therefore the lending options are more flexible and the criteria for lending or attitude to risk may be quite different than your bank.
The manufacturers’ organisation, the EEF, has stated that while the FLS is a great idea, it is slow to respond to the needs of manufacturers and needs to be supplemented by other sources of finance. One very important option is asset finance and as we can see here, there are many good reasons for becoming one of the growing number of businesses who are taking this path towards improved growth and higher profits.