There are fresh concerns that manufacturing businesses can’t access the funding they need to support the working capital requirement that comes with this growth, as up to 43% of SMEs indicated they will need to borrow further ‘simply to survive’ in 2023 (1).
The warnings, from Fresh Thinking Advisory, come as the UK manufacturing sector demonstrated its long-term resilience in the first quarter of the year as local and international markets began to recover, helping firms combat a period that saw the highest monthly input cost inflation since records began in 1985.
The sector continues to face an unprecedented combination of rapidly rising costs, supply chain woes and high debts from the pandemic at a time when bank loans to SMEs fell by £14bn in the year to Feb 2023 (2). As banking turmoil continues, recent high-profile collapses threaten to further reduce access to funding.
Monthly input cost inflation (PPI) of up to 24.5% in 2022 (3) (remaining at more than 7% even now) is only just beginning to be balanced with higher sales prices, with improving activity levels in 2023 leading MAKE UK to conclude that margins will stabilise over the next 3 months and even begin to rise slightly in the sector for the first time since H2 2021 (4).
Manufacturing firms are facing a potential shortfall in the lending available to them as they need to invest in working capital, new equipment, research and development, and other activities that could help them grow and remain competitive as the sector begins to recover.
MAKE UK is seeing firms reporting UK orders improved to +20% after entering negative territory (-2%) in Q4 2022.
Commenting on the sector, Oliver Reece, managing director of Fresh Thinking Advisory, said: “The positive momentum the manufacturing sector is seeing will put pressure on funding lines just when businesses think they are starting to see the light at the end of the tunnel.
“In recent years, many UK manufacturers have faced a number of challenges related to access to finance, including a lack of available lending from traditional sources such as banks and other financial institutions. As the sector begins to rebound, it needs funding to invest in working capital and take advantage of the growth in orders, particularly where both input and output prices have increased, which combined with supply delays, has increased the working capital cycle materially.
“We are calling for any manufacturers seeking funding to contact a debt advisory specialist sooner rather than later, as there are alternative routes available to secure the required capital or to re-negotiate and right-size facilities with existing lenders. These discussions are always better done well ahead of any issues that may arise.”
Fresh Thinking Advisory helps companies seeking a wide range of funding options up to £100m by offering impartial debt advisory services. The firm provides a whole market debt advisory offering and uses its expertise and network to help clients raise and re-negotiate debt funding. It uses a network of trusted specialists and alternative lenders developed over decades.
Many manufacturing businesses have taken on large amounts of debt in order to survive, and according to a poll by accountants RSM, 65% of businesses claimed that a shortage of cash had prevented them from achieving their growth goals.
Oliver Reece concluded: “As the manufacturing sector continues to recover from a tough economic period, it’s essential that they have access to the funding they need to grow. There are opportunities at home and abroad for ambitious firms that want to exploit them.”
Source references:
1) Business Leader website reference
2) Business Money website reference
3) Producer Price Index (PPI) from the Office for National Statistics
4) MAKE UK manufacturing outlook 2023 q1
