SHORT term lenders are reporting an increase in the number of UK manufacturers using 'bridging loans' to ease cash flow worries.
The latest CBI quarterly SME Trends survey reveals a bleak outlook for the next quarter, with 78 per cent of manufacturers predicting reduced demand due to the current economic slowdown as well as rising input costs.
Experts say manufacturers are relieving the pressure by taking on short term finance to ease cash flow concerns and enable them to seize business opportunities that some banks are reluctant to back because of the credit squeeze.
Chris Baguley, managing director of Bridging Finance Limited, a company that supplies bridging loans to manufacturers through a network of professional advisers, said there has been a 27 per cent increase in the number of manufacturers applying for bridging loans from his company in the first quarter of 2008 compared to 2007:
“The squeeze on profit margins means that cash flow is becoming a major issue for small and medium sized manufacturers. We’ve seen a 27 per cent increase in the number of instructions this year compared to last year. This latest report by the CBI indicates that our situation is typical of lenders who are able to fulfill the gap that some banks are leaving as they pull out of the market.
“Accountants and other professional advisers are increasingly recommending to their manufacturing clients that a bridging loan is a good option to ease the pressure until long term finance can be arranged. Typical reasons cited for the loan, as well as to ease cash flow, are to acquire new machinery, new premises or to pay off tax bills.”