Fewer firms paying more

Posted on 29 Nov 2010 by The Manufacturer

Industry may be past the worst of access to finance problems, says EEF survey.

Ahead of the Office for Budget Responsibility’s updated economic forecasts, the manufacturers’ organisation EEF’s latest credit survey shows the first appreciable improvement in the overall cost of credit in 12 months.

Over the past quarter, the proportion of companies reporting an increase in the fees and interest rates on both new and existing credit facilities has continued to come down. However, the percentage of companies actually seeing costs fall remains unmoved.

“Signs of improvement in access to finance are welcome and the survey suggests that industry may be past the worst of the problems,” said EEF’s chief economist, Lee Hopley (pictured).

“However, we are not out of the woods yet. Banks, industry and government need to push ahead with efforts to bring down the cost of borrowing and get credit flowing more freely to those companies that need it.”

EEF stressed that there was no room for complacency in attempts to ensure companies could access the finance they needed to invest and grow. In recent weeks Banks, government and Industry have moved towards a broader agreement on what needs to be done to address these challenges. This must now be taken forward with action.

In practice this means improving access to finance through greater competition between Banks, alternatives to equity finance and, a restructuring of government-backed schemes into a single access portal.

EEF’s Hopley told BBC Radios 4’s Today programme this morning: “The bigger picture is that we’re not seeing a big movement in the availability of credit. But much work has gone into things like the government’s Green Paper on access to finance, and the banks have produced their own taskforce report – this shows the issue is rather more complex than demand and supply.

“The window of opportunity to address this problem will not remain open indefinitely and failure to take action now risks weakening economic growth over the rest of this Parliament,” Hopley added.

Key findings of EEF’s access to credit survey include:

• Almost 20% of companies saw a moderate or significant increase in the cost of credit. This compares to 30% in Q3 and 34% in Q2.
• Whilst the majority saw no change in the cost of credit only 2.3% saw a moderate or significant decrease.
• 8.3% of companies saw an increase in availability of new lines of borrowing, down from 13% in Q3. Almost 16% of companies saw availability decrease, broadly unchanged from the last quarter.
• The cost of new lines of borrowing increased for 30% of companies, down from 37% in Q3. Only 4% of companies saw a decrease
• For companies with existing credit facilities (including overdrafts) the fees were unchanged for 80% of companies, though only 0.6% saw a decrease.