On January 14, Royal Bank of Scotland announced to TM the launch of a £1bn fund dedicated to UK-based manufacturers, the first fund of its kind. Edward Machin reports.
Designed in conjunction with NatWest, and aimed at kick-starting growth in a traditionally underfinanced sector, the interest-only loans will be made available via a series of releases, for periods of two or three years, with the first release carrying fixed rates of 3.4% and 4.3%, respectively.
Manufacturers borrowing across three years will have the option to partially repay in their final year, while both lending facilities will attract a flat arrangement fee of 75 basis points — applicable for any loan drawn within the fixed rate.
Accessible in sums between £250,000 and £25m, and with RBS borrowing capital from its own balance sheet — i.e. not government-sponsored — to support UK manufacturing, the fund is primarily geared towards borrowers’ investment for growth; be it through acquisition, capital expenditure or increased working capital.
In making finance available to both new and existing RBS customers, the fund applies across the bank’s corporate division to include its business and commercial segments. While covering manufacturers from start-up to large corporate organisations, however, loans are primarily aimed at SME and mid-market companies, given the difficultly that such manufacturers all too regularly experience in accessing viable credit lines.
Announcing the scheme to The Manufacturer, Peter Russell, head of manufacturing & infrastructure, RBS, said, “We are delighted to launch this fund in support of UK manufacturers.
We are under no illusions that recovery across the sector will be easy or straightforward, but from taking to our customers we do see that investment for growth, in whatever form this might take, is back on the agenda.
“That’s why we are launching this fund now; we are keen to ensure that we play our part in helping manufacturers to maintain or improve their competitiveness and build financial strength at the same time. With the absence of capital repayments and very competitively-priced fixed rates, borrowers should be able to maximise their ability to invest for growth, and we see this initiative as an extremely positive step in helping the sector to contribute more broadly to recovery of the UK economy.
“As far as the application process is concerned, it is very much business as usual, in that access to the fund is a straightforward commercial process that manufacturers will be familiar with. Once all relevant information concerning a proposition is available, we expect decisions to be made and loans documented and available for drawing within four to six weeks. I would therefore strongly encourage manufacturers to contact their relationship manager to learn more about the fund in the near future.” Reaction to the fund has largely been positive, albeit with a sense of caution tempering any premature celebrations at this stage.
EEF director of policy, Steve Radley, praised an initiative being introduced to support growth. “Recognition by the banks that they have a role in supporting productive companies is a welcome step in the right direction,” he said. Similarly, with RBS claiming the fund primarily targets small and medium-sized businesses, senior strategist at BGC Brokers, Howard Wheeldon, said the bank should be saluted for “heeding the call of the small guy for support.” Wheeldon raises a more intriguing point, however. “Each year banks do more to protect themselves against ‘bad’ loans,” he said. “Let’s hope that RBS isn’t just talking the right talk while having no intention of doing what banks are supposed to do — take a degree of necessary risk.” Ultimately, RBS’s Manufacturing Fund is a commendable show of support to the sector.
But while the money has been made available, and the headline rates are attractive, for many the champagne can be put on ice. Credit constraints still exist, and SME manufacturers’ plight will not be solved by ventures like this alone. RBS’s job now is to convince potential customers that borrowing terms are less onerous with this fund than those offered by the general banking market 6-12 months ago. Only this will demonstrate whether the fund can make a real difference to a sector that is, in the main, still reeling.