Mixed money bag for manufacturers

Posted on 20 Sep 2010 by The Manufacturer

Commercial lending barriers are beginning to ease for larger manufacturers but the cost of new credit lines is rising, EEF has found.

Responding to the manufacturers’ organisation’s latest credit conditions survey, 31 per cent of companies reported that their overall cost of credit actually increased over the last two months. The cost of new lending lines increased for 37 per cent.

Medium and large companies are now beginning to see supply problems ease, with the survey finding an overall increase of 13 per cent in terms of new lines of borrowing. Small firms, though, are still reporting lean pickings from the banks.

EEF’s survey is published on the day that submissions close to Government on the Access to Finance Green Paper, which is examining bank lending conditions and companies’ access to credit.

Commenting on the survey Lee Hopley, EEF Chief Economist, said:

Despite the pick up in the economy, too few companies are seeing a significant improvement in lending conditions,” said EEF chief economist, Lee Hopley. “This was never likely to be a swift or easy process, but we are concerned that the rise in the cost of new borrowing may be signalling that the supply of finance is not able to keep up the upturn in manufacturing activity.”

Conditions are not likely to improve radically in the near future, Hopley said, although she welcomed government’s call for submissions to its Access to Finance Green Paper which Business Secretary Vince Cable announced recently and the consultation period for which opens today.

“As banks rebuild their balance sheets and take a more cautious approach to risk given the uncertainty surrounding the recovery we are not likely to see much movement in these indicators in the short term,” she said. “The fact that government has chosen to tackle this issue as an early priority, is therefore to be welcomed.”

EEF has outlined a number of recommendations in its own submission for the Green Paper, including improve transparency over the total cost of lending and lending criteria in order to try and drive down costs through competition; consider tax incentives to encourage alternatives to bank lending like equity investments; and combine government funding opportunities into a single source so that companies can see what is available.