The Society of Motor Manufacturers and Traders (“SMMT”) held their first “Meet the Funder” event on 21 November 2012. This initiative, aimed at improving the two way dialogue between the financial sector and the UK automotive industry, is a response to recommendations outlined in a report commissioned by the SMMT entitled Give Them Some Credit (view the report here). The Report outlined the main financial and growth constraints affecting the UK automotive supply chain and in particular highlighted the issues faced by SMEs in the sector.
The Report highlights problems faced by SMEs in financing growth and in particular the difficulties in securing finance for tooling development costs. The Report identified that SMEs looking to expand and invest in their operational capacity may well have a funding gap.
If we take an automotive supplier who receives a new lifecycle product order the supplier may have to invest in (1) new factory premises, (2) new plant and machinery and (3) will also require working capital. The Report’s findings suggest that whilst some funders who are ‘open for business’ try to provide an all encompassing package of funding the reality is that a blend of finance from a number of different sources (such as property finance, a sale and leaseback arrangement for the plant and machinery, invoice discounting to assist with working capital and possibly a government backed initiative such as the EFG scheme) is often required to secure finance for growth and reduce the funding gap.
Pitmans’ experience shows that securing adequate funding for automotive suppliers is difficult in the current marketplace. Clients are often seeking funding on top of traditional invoice discounting lines which assist with cash flow but do not provide the additional working capital required to invest in growth. Whilst we would agree with the Report that there is a lack of lenders who are offering all encompassing finance packages, we are currently acting on transactions where lenders are funding working capital on top of invoice discounting lines.
That small and medium sized businesses are struggling to obtain the finance required for growth is of course not a problem which is exclusive to the automotive industry. The pace at which the UK’s automotive industry is expanding however suggests that it is an area worth focusing on. One of the important findings of the Report is that an apparent lack of understanding of the automotive supply chain among the financial institutions is responsible. The SMMT are therefore rolling out their Meet the Funder initiative in order to improve understanding and build relationships between the sectors in the hope that they can increase access to finance.