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Focus on Manufacturing

Funding Manufacturing

As the UK moves towards Brexit, the manufacturing sector will continue to be a focus of interest for politicians, economists and commentators, and manufacturing businesses and investors will want to know what support the sector will receive. A key factor in the growth and development of the manufacturing sector will be access to debt funding, to enable businesses to expand through the acquisition of new plant, machinery and premises to drive growth by entering into new geographical markets and building supply chains.

We have seen strong support from lenders for a range of businesses in the manufacturing sector and have recently worked on deals involving a variety of the funding structures referred to on the right. Our experience is that lenders are keen to support a wide range of manufacturers. In 2016 the steel industry went through well-publicised difficulties, but funders remained willing to support management and investors even in these challenging times. We are delighted to have advised ABN AMRO on funding the rescue of the Kiveton Park Steel business from administration.

Whilst the EU referendum result has brought challenges to those businesses involved in importing and with exposure to currency movements, the resulting weakness of sterling has given manufacturers involved in export a significant boost. We have seen strong support for clients which are successful exporters – for example advanced manufacturing and engineering businesses such as AESSEAL for whom we acted on their new revolving credit facility. The automotive sector remains buoyant (with a record 1,600,000 cars having been manufactured in 2016) and businesses in the automotive supply chain have been of particular interest to funders.

Turning to the domestic market, sectors which lenders have been particularly keen to fund include those related to house building and home improvement – we advised HSBC and HSBC Invoice Finance on the refinancing of home furniture maker Home Décor and the funding of its acquisition of bespoke kitchen manufacturer Optiplan Kitchens. We also acted for Lloyds Banking Group on facilities which it made available to Distinction Doors. Food is another sector which has seen significant activity and our recent experience includes working with Shawbrook Bank on an asset based lending facility to food producer and distributor Around Noon Limited to facilitate a refinancing and management buyout.

The appetite of lenders for manufacturing businesses has been demonstrated by the continuing trend of downward pressure on lender’s fees and margins on transactions involving strong corporate credits. At the same time, competition for funding for smaller companies provides more opportunities for these businesses to raise finance, with many challenger banks, asset based lenders and crowd funders now in the market and new entrants coming forward into the market all the time.

In conclusion, the debt funding market for manufacturing businesses of all kinds is probably healthier now than at any time since the global financial crisis, with the major banks, independent finance companies and new entrants to the market all keen to assist this key sector of the economy.

It is worth taking a moment to survey the current types of funding available to manufacturers. Finance is available in a number of forms and from a wide variety of lenders including:

Loans - from short term, unsecured overdrafts repayable on demand to long term commercial mortgages secured on property

Invoice Finance (including factoring and invoice discounting) – selling book debts at a discount for immediate cash to generate working capital

Asset Based Lending – raising finance by releasing capital tied up in stock, property, plant and machinery

Trade Finance – financing the import and export requirements of businesses, through letters of credit, bills of exchange and other import and export facilities

Supplier Finance – this rapidly growing source of funding helps to reconcile the requirements of suppliers for shorter payment terms with the desire of buyers for extended payment terms

Asset Finance – provided to support the acquisition of everything from single “big ticket” assets to smaller items of plant and machinery

Crowd Funding – where a large number of people each lend a relatively small amount of money and Peer to Peer Platforms which enable individuals and businesses to lend to SMEs. These sources of finance are most suitable for start-up businesses and to meet smaller funding requirements

Government Backed Initiatives – such as the Enterprise Finance Guarantee which provide access to finance for small businesses unable to provide the security required by many lenders.

Published: 16 May 2017

Focus on Manufacturing - Edition 5

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  • Hayley Johnson
  • Senior Associate Solicitor
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